electroCore, Inc.

Greetings and welcome to the ElectroCore third quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. Please make sure to mute yourself. 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. It is now my pleasure to introduce your host, Dan Goldberger. Thank you, sir. You may begin.

Thank you all for participating in today's ElectraCore earnings call. My name is Dan Goldberger. I'm the Chief Executive Officer of ElectraCore, and I am also a member of the Board of Directors. Joining me today is Brian Posner, our Chief Financial Officer. Earlier today, ElectraCore released results for the third quarter ended September 30th, 2023. 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 the historical facts should be deemed to be forward-looking statements. All forward-looking statements including without limitation any guidance, outlook, or future financial expectations or operational activities and performance, 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 the risks and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission. ElectroCorp 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, November 8, 2023. ElectroCore was founded in 2005 to commercialize the use of our proprietary non-invasive vagus nerve stimulation for medical and general wellness applications. The vagus nerve is the longest cranial nerve in the body, bringing information from the visceral organs to the brain. Stimulating the vagus nerve affects many important autonomic functions in the brain and in the body, including neurotransmitter levels, inflammation levels, and metabolism. Surgically implanted vagus nerve stimulators have been available from other companies for more than 40 years for chronic conditions like epilepsy and depression. So a large and growing database confirms the safety and efficacy of the technique. Building on that science, ElectriCorps pioneered non-invasive vagus nerve stimulation, and our products are now available by prescription for certain headache conditions and without a prescription for general wellness. We have a growing pipeline of additional indications that we plan to launch in the future. We're thrilled to report a fourth consecutive record revenue quarter with sales of $4.5 million for the three months ended September 30th, 2023. That's a 128% increase over the prior year and 27% increase sequentially. Gross margins held steady at 85%, and Brian will discuss the financials in more detail later on. During the third quarter, we strengthened our balance sheet by raising net proceeds of approximately $7.5 million in a registered direct and private placements of equity to returning institutional and accredited investors, and certain directors and officers. We believe that our increased cash balance along with potential future increases in revenue and continued discipline around operating expenses should provide us with enough runway to operate our business through 2024 and beyond. Our prescription headache business continues to grow worldwide. We launched two new non-prescription general wellness product lines in late 2022. Truvega is a direct-to-consumer brand and tax sim for human performance is for our active duty military personnel. Both new brands continue to exceed our expectations in the third quarter and are driving excitement about the future. Truvega is currently available exclusively through our e-commerce platform at www.truvega.com. We are positioning Truvega as a direct-to-consumer general wellness product for stress, relaxation, sleep, and mental acuity. We are carefully managing our Truvega advertising spend as we fine-tune our messaging and explore various platforms. We held the total spend fairly constant from Q2 to Q3, so we're not surprised that sequential revenue was relatively flat in the quarter for the Truvega brand. Truvega recorded net sales of $267,000 in the third quarter of 2023, in line with our second quarter of 2023 Truvega revenues of $290,000. Based on this continued success, we're making targeted investments in marketing Truvega and remain confident in our previous guidance that Truvega sales will be approximately $1 million for the full year 2023. For the three months ended September 30th, 2023, our revenue return on advertising spend, what the industry calls a media efficiency ratio, or MER, was 2.09%. In other words, we're spending $1 to generate $2.09 of revenue. We're carefully monitoring Truvega return rates as well, which have decreased slightly to approximately 12% so far this year. We believe that the Truvega business can scale nicely if we can maintain or improve these metrics. PaxSim for human performance is being sold to select Air Force Special Forces and Army Special Forces units for accelerated training, sustained attention, reduced fatigue, and improved mood, as defined by the Air Force Research Laboratory, or AFRL. No prescription is required, and more information is available at www.tac-stim.com. We recorded $601,000 of TAC STEM revenue in the third quarter of 2023, up from $311,000 in the second quarter of 2023. For the nine months ended September 30th, 2023, we've already met our previously stated guidance of $1 million of revenue from the TACSIM brand for the full year 2023. The sales funnel for this product continues to grow as word spreads across active duty military units of the potential human performance benefits provided by TACSIM. In parallel, we're developing a second generation product known internally as TACSIM 2.0 in collaboration with AFRL. and we continue to build prototypes for evaluation by our government research partners. We have stated before that revenue growth for this product line is likely to be lumpy as active duty units purchase in bulk for pilot deployment. Turning now to our prescription headache business, the VA DOD hospital channel continues to be our largest customer. You'll recall that our GammaCorp prescription therapy is free to patients covered by Veterans Administration benefits representing about 9 million covered lives across approximately 1,300 healthcare facilities. Sales in the VA DOD channel grew 135% from $1,167,000 in Q3 2022 to $2,737,000 in the third quarter of 2023. 141 VA and DOD military treatment facilities have purchased prescription gamma core products through September 30th, 2023, as compared to 113 through September 30th, 2022. The VA Hospital Administration Headache Centers of Excellence, or HCOE, estimates approximately 600,000 patients are being treated for headache in the VA hospital system. Since we've dispensed approximately 4,000 gamma core devices to veterans, that represents less than 1% of the total addressable market within the VA system. We look forward to continued penetration of this important channel. Our physician-dispensed cash-paid channel, including GC Direct and GConcierge, grew 19% from $359,000 in the third quarter of 2022 to $427,000 in the third quarter of 2023. These channels have grown from 938 prescribers at the end of the third quarter of 2022 to 2,599 at the end of the third quarter of 2023. We added 362 new prescribers during the third quarter of 2023. We believe that the increase in prescribers could be a leading indicator of future growth. Last year, we announced a distribution agreement with Jerns Healthcare that we believe will add more than 12.5 million covered lives within a select managed care health system. The business model with Jerns is similar to how we work with the VA hospital system. Jerns handles educations, billing, and collections, while ElectroCore ships directly to patients and provides in-servicing and patient support. Our field sales team is responsible for educating clinicians within those managed care systems. We continue to work with JIRNS on the implementation, and we are pleased to have recorded small initial revenue from this relationship during the third quarter of 2023. Our field sales function will continue developing champions within the target managed care system, and we think JIRNS could be a significant revenue source in 2024 and beyond. Revenue from channels outside the United States increased by 11% in U.S. dollars to $464,000 in the third quarter of 2023, as compared to $417,000 for the third quarter of 2022. Most of our OUS revenue is generated in the United Kingdom by prescription Gamma Core sales funded by the National Health Service, or NHS, which increased 13% in local currency. On October 17, 2023, we announced that gamma-core therapy will continue to be listed in the United Kingdom's National Health Service, or NHS, supply chain catalog for at least an additional two years through March 17, 2026. The listing, which commenced on June 4, 2019, was scheduled to terminate on March 18, 2024. Now, turning to our clinical progress, on October 24, 2023, We announced top line data from an abstract presented at the 2023 American College of Gastroenterology annual meeting regarding the potential for MVNS to decrease the use of acute rescue medications for exacerbations of nausea due to gastroparesis, GP, or functional dyspepsia, FD. The study is entitled Noninvasive Vagal Neurostimulation Reduces Nausea Rescue Medication in Patients with Gastroparesis and Related Disorders with additional benefits on multiple other associated symptoms. The primary endpoint was reducing the use of anti-nausea medications. On October 10th, 2023, we announced top-line data from two abstracts that were presented at the 15th World Stroke Congress on the possible role of NVNS in the treatment of acute neurological injuries. The first trial, entitled Non-Invasive Vagus Nerve Stimulation is Safe and Efficacious, in the treatment of headache associated with subarachnoid hemorrhage, Vanquish, was conducted at Northwell Health in New York and showed a significant reduction in the overall pain score and a 14% decrease in the average morphine equivalent dosage after two weeks of treatment, as well as a trend towards a three-day decrease in average hospital stay. The second study entitled Noninvasive Vagus Nerve Stimulation in Acute Ischemic Stroke or Novist, is a prospective randomized clinical trial with blinded outcome assessment being conducted at the Leiden University Medical Center. 150 patients with ischemic stroke are being randomly allocated one-to-one to NVNS for five days in addition to standard treatment versus standard treatment alone. On September 27th, 2023, we announced the publication of two peer-reviewed publications, supporting gamma-core NDNS in patients with post-traumatic stress disorder, or PTSD. Both studies were conducted at Emory University and were published in the peer-reviewed Journal of Affective Disorders. The first publication, Effect of Transcutaneous Cervical Vagus Nerve Simulation on Declarative and Working Memory in Patients with Post-traumatic Stress Disorder, or PTSD, was conducted under the direction of Dr. Bremner with the support of Emory University, the Georgia Institute of Technology, and the Atlanta Veterans Affairs Medical Center, and was sponsored by a Department of Defense Small Business Technology Transfer Grant. The study suggested that transcutaneous vagus nerve stimulation improves attention and declarative and working memory in patients with PTSD as measured by multiple endpoints. The second published peer-reviewed manuscript entitled Transcutaneous Vagal Nerve Stimulation Modulates Stress-Induced Plasma Ghrelin Levels a double-blind randomized sham-controlled trial, concluded that transcutaneous vagus nerve stimulation could reduce the levels of ghrelin in response to various stressful stimuli. Ghrelin is a neuropeptide hypothesized to be involved in the stress response, if you recall. The FDA previously awarded prescription GammaCore breakthrough designation to treat the symptoms of PTSD, and both publications provide important data that may be leveraged as we work with the agency towards a 510K de novo clearance for a PTSD indication. On July 6, 2023, we announced that the NFL and NFL Players Association jointly awarded two grants to independent medical researchers at the American Society of Pain and Neuroscience, ASPN, and Emory University to fund investigations into innovative, first of their kind, alternative pain management methods that could benefit NFL players and society at large. The study is actively enrolling investigators and will continue to provide updates about the NFL and NFLPA study, our pipeline, and other opportunities in coming months. Now, I'll turn the call over to Brian for a review of our financials and other guidance items. Brian. Thank you, Dan.

For the quarter ended September 30th, 2023, ElectraCore reported net sales of $4.5 million compared to $2 million during the same period of 2022, which represents an approximately 128% increase over the prior year. The increase of $2.5 million is due to an increase in net sales across major channels, including the sale of our prescription GammaCore devices in the U.S. and abroad, and revenue from the sales of our non-prescription general wellness Trevega, and taxed in brands. Total operating expenses in the third quarter of 2023 were approximately $8 million as compared to $7.3 million in the third quarter of 2022. Research and development expense in the third quarter of 2023 was $1.2 million as compared to $1.6 million in the third quarter of 2022. This decrease was due to a decrease in compensation associated with cost cutting measures offset by our targeted investments to support the next generation of the company's non-invasive nerve stimulators. Selling, general, and administrative expense in the third quarter of 2023 was $6.7 million as compared to $5.7 million in the third quarter of 2022. This increase was due to greater variable selling and marketing costs consistent with our increase in net sales. GAAP net loss in the third quarter of 2023 was $4 million compared to the $5.5 million net loss in the third quarter of 2022. Adjusted EBITDA net loss in the third quarter of 2023 was $3 million as compared to a net loss of $4.8 million in the third quarter of 2022. 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. Cash, cash equivalents, and restricted cash at September 30th, 2023 totaled approximately $13.7 million as compared to approximately $18 million as of December 31st, 2022. In July 2023, The company raised net proceeds of approximately $7.5 million through our registered direct offering and concurrent private placements priced at the market under NASDAQ rules. Looking ahead, for the full year 2023, we are increasing our net revenue guidance to $15 million to $15.5 million from $14 million to $15 million. representing more than 70% growth over 2022. And now I'll turn the call back over to Dan.