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spk04: Hello, and welcome to the ElectroCore fourth quarter and full year 2023 earnings conference call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. At this time, I'd like to turn the call over to Dan Goldberger, CEO. Please go ahead, sir.
spk01: Thank you all for participating in today's ElectraCorp earnings call. My name is Dan Goldberger. I am the Chief Executive Officer of ElectraCorp, and I'm also a member of the Board of Directors. Joining me today is Brian Posner, our Chief Financial Officer. Earlier today, ElectraCorp published results for the fourth quarter and full year ended December 31, 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 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. 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 accurately only as of the live broadcast today, March 13, 2024. ElectroCorps 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 simulators 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, ElectroCore 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 and human performance. Our pipeline of potential future indications and products continues to grow as clinicians, researchers, and wellness advocates become more familiar with the benefits of non-invasive vagus nerve stimulation. We're thrilled to report revenue of $16 million for the full year ended December 31, 2023, an 87% increase over the prior year. This represents a compound annual growth rate of greater than 60% since Brian and I joined the company five years ago. 2023 was capped off by a fifth consecutive record revenue quarter with sales of $5.2 million for the three months ended December 31, 2023. That's a 103% increase over the fourth quarter of 2022 and approximately $21 million annual run rate as we enter 2024. Gross margins continue to be strong, increasing from 81% to 83% for the full year 2023, and Brian will discuss the financials in more detail later on. We launched our prescription headache business in 2017, selling primarily to specialty pharmacies. Since then, our prescription headache business has grown worldwide, including sales that are covered by national health systems, such as the VA hospital system in the US and the National Health Service in the United Kingdom, cash pay sales in the commercial channel, and through certain managed care systems. We launched two new non-prescription general wellness product lines in late 2022. Truvega is a direct-to-consumer brand and TACSTEM for human performance is for our active duty military personnel. Both new brands exceeded our expectations in their first full year of sales and are driving excitement about the future. The VA 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 channel grew 89% to $9.6 million in 2023 from $5.1 million in 2022. 147 VA facilities have purchased prescription Gamma Corps products through December 31, 2023, as compared to 117 through December 31, 2022. The VA Hospital Administration Headache Centers of Excellence, the HCOE, estimates approximately 600,000 patients are being treated for headache in the VA hospital system. Since we have dispensed approximately 4,400 gamma-core devices to veterans, that represents less than 1% of the total addressable market within the VA system. In order to further penetrate the channel, in August 2023, we signed a non-exclusive distribution agreement with Level Government Services giving Level the right to list and distribute certain prescription GammaCorp products into the federal market. Level is a service-disabled, veteran-owned small business, an SDVOSB, offering medical and pharmaceutical goods and services to federal health care providers. Listing products with Level is intended to streamline the sales process to a variety of government procurement channels, which helps government agencies meet their SDVOSB procurement goals. customers for these contract mechanisms include the Veterans Health Administration, VHA, the Military Health System, MHS, and Indian Health Services, IHS, which we believe serve up to 21 million patients combined. 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 prepare to launch our next generation mobile app enabled general wellness product, Truvega Plus. Full year, 2023, Truvega net sales were approximately $1 million. Truvega net sales in the fourth quarter of 2023 were approximately 21% up sequentially from the third quarter of 2023. For the full year ended December 31, 2023, our revenue return on advertising spend, what the industry calls a media efficiency ratio, or MER, was approximately 2.27. In other words, we're spending $1 to generate $2.27 of revenue. We're carefully monitoring TrueVega return rates, which continue to be 11 to 12% of shipments. We believe that the Truvega business could scale nicely if we maintain or improve these metrics, and we're excited about the anticipated launch of Truvega Plus next month. TaxSTEM 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.taxtim.com. For the full year ended December 31, 2023, we recorded $1.75 million of TACSTIM sales. 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 TACSTM. In parallel, we've developed a second generation product known internally as TACSTM Black in collaboration with AFRL, and we continue to build prototypes for evaluation by our government research partners. We've stated before that revenue growth for this product line is likely to be lumpy as active duty units purchase in bulk for pilot deployment, and we expect TACSTM revenues in the first quarter of 2024 to be down sequentially due to the timing of these orders. Our physician dispensed cash pay channel, including GC Direct and G Concierge, grew 42% to $1.7 million during the full year 2023 from $1.2 million in the full year 2022. there were 1,843 cumulative revenue generating cash pay prescribers as of December 31, 2023, up from 948 on December 31, 2022. We believe that the increase in revenue generating prescribers could be a leading indicator of future growth and we'll continue to report this metric in our investor presentation and in subsequent quarters. Last year, We announced a distribution agreement with Jerns Healthcare LLC 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 adjudications, billing, and collections, while ElectraCore ships directly to patients and provides in-servicing and patient support. Our field sales team is responsible for building awareness among clinicians within those managed care systems. We continue to work with Charens on the implementation and continue recording small recurring revenue from this relationship during the fourth quarter of 2023. Our field sales function is developing champions within the target managed care system, and we think Charens could be a significant revenue source in the second half of 2024 and beyond. Revenue from channels outside the United States increased by 13% in U.S. dollars to $1.8 million in the full year 2023 as compared to $1.6 million for the full year 2022. Revenue from channels outside the U.S. increased 18% in local currency for the full year 2023 as compared to 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. 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 NBNS to decrease the use of acute rescue medications for exacerbations of nausea due to gastroparesis or functional dyspepsia. is entitled non-invasive vagal nerve stimulation 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 10, 2023, we announced 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, also known as the VANQUISH trial, 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. Second study, entitled Noninvasive Vagus Nerve Stimulation in Acute Ischemic Stroke, also known as NOVIS, is a prospective randomized clinical trial with blinded outcome assessment being conducted at the Leiden University Medical Center. 150 patients with ischemic stroke were randomly allocated one-to-one to NVNS for five days in addition to standard treatment versus standard treatment alone. This study has been fully enrolled, and we hope to see top-line data by the end of 2024. We'll continue to provide updates about our pipeline and other opportunities as they become available. Now, I'll turn the call over to Brian for a review of our financials and other guidance items. Brian?
spk05: Thank you, Dan. Net sales for the year ended December 31st, 2023 increased 87% as compared to the year ended December 31st, 2022. The increase of $7.4 million is due to an increase in net sales across major channels, including our prescription GammaCore medical devices sold in the US and abroad, and revenue from the sales of our non-prescription general wellness and human performance Trivega and TacStim products. Gross profit of $13.2 million increased $6.3 million for the year ended December 31st, 2023, compared to gross profit of $7 million for the year ended December 31st, 2022. Gross margin was 83% and 81% for the years ended December 31st, 2023 and 2022, respectively. Total operating expenses in the full year ended December 31st, 2023 were approximately $32.5 million as compared to $29.9 million for the full year ended December 31st, 2022. Research and development expense of $5.3 million for the year ended December 31st, 2023 decreased by $200,000 from $5.5 million during the full year ended December 31st, 2022. This decrease was due to 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 of $27.2 million for the year ended December 31, 2023, increased by $2.8 million compared to $24.3 million for the previous year. This increase was primarily due to our greater variable selling and marketing costs consistent with our increase in sales, offset by decreases in insurance and stock-based compensation expenses. GAAP net loss for the full year of 2023 was $18.8 million as compared to the $22.2 million net loss for the full year of 2022. Adjusted EBITDA net loss for the full year of 2023 was $15.4 million as compared to an adjusted EBITDA net loss of $19 million for the full year 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 December 31st, 2023 totaled approximately $10.6 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 a registered direct offering and concurrent private placements priced at the market under NASDAQ rules. And now I'll turn the call back over to Dan.
spk01: Thank you, Brian. I'm very proud of our full year 2023 operating results and with the continued momentum in our prescription headache and general wellness businesses. All of our operating metrics continue to beat expectations and we continue to be enthusiastic about the company's long-term prospects across all brands and product lines. The launch of our first general wellness product, TrueVega 350, was received favorably by the market as evidenced by greater than $1 million of revenue in its first full year of sales and the efficiency of our media spend to drive those sales. The brand continues to show tons of potential as a direct-to-consumer general wellness offering, and we are incredibly excited about the anticipated launch of our next generation TruVega Plus product next month. TruVega Plus will be the first mobile app-enabled cervical non-invasive vagus nerve stimulator on the market and will leverage many of the patents involving the control of the stimulator using a smartphone device that we've secured over the last few years. We'll continue selling Truvega products through our e-commerce site, www.truvega.com, and hope to add additional channels and product offerings to increase the lifetime value of each customer. We will continue to monitor our KPIs and metrics and adjust our investment in all of our consumer channels as the year progresses. A pipeline of interest from different branches of our active-duty military continues to develop for our TACSTM and second-generation TACSTM Black products. Sales of the text and brand are likely to be lumpy as active duty units purchase in bulk for pilot deployment. Longer term, we also believe that there may be civilian crossover as first responders, elite athletes, transportation workers, traders, and e-gamers become aware of the human performance benefits established so far. Demand for our prescription gamma core therapy in the VA channel continues to grow based on clinical performance and our increased presence in the field. We have about 35 straight commission sales agents representing about 90 1099 reps in the field managed by our small team of territory business managers and supported by our customer experience team. This hybrid structure is very scalable as we deploy prescription GammaCore around the country. During 2023, our sales and marketing expense increased by approximately $3.3 million over 2022, while sales grew by $7.4 million, signaling that there may be real leverage opportunities in the P&L. Further out, we're working towards establishing additional indications for prescription GammaCorp to treat post-traumatic stress disorder, opioid use disorder, and other clinical opportunities. We have lots of positive momentum leading into 2024 including one continued growth in our u.s prescription headache business in both the va and commercial channels two anticipated launch of our next generation true vega plus product next month for general wellness mental acuity and sleep driven by ongoing consumer marketing efforts three further development of the tax stim brand and launch of tax stim black later in the year for human performance in the active duty military and civilian crossover. Four, revenue through our distribution agreement with insurance healthcare for the sale of prescription GammaCorp within a select managed care health system. Five, prescription GammaCorp label extensions for a variety of indications over time. And six, more than enough cash to execute our plan through 2024 and close the cash flow gap even further. At this time, I'll turn the call over to the operator. Operator, please open the line for questions.
spk04: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, 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. Once again, that's star 1 to be placed in the question queue. Our first question today is coming from Jeffrey Cohen from Lannenberg Farmer. Your line is now live.
spk02: Hi, Dan and Brian.
spk04: How are you?
spk01: Good, thank you. How are you, Jeff?
spk02: Good. I'll keep it to just a few. So do you intend that TrueVega Plus eventually replace TrueVega, or do you feel as if the functionality may offer different advantages for different users?
spk01: It's a great question, Jeff. We're going to launch next month our TrueVega Plus. We're going to continue to offer the TrueVega 350 at a lower price point. They've got different feature sets, and that will allow us to do some price discovery and It'll allow us to learn more about what feature sets are more important to different customer segments. So for the foreseeable future, I think we're going to be offering at least two different product configurations in the direct-to-consumer truvega.com channel.
spk02: Okay, and then can I segue that over to Taxton? This Taxton, nice quarter, by the way, on the Taxton. The Taxton Plus? Yes. What is the difference between that and the TACSTEM? Is it related to power or amplification or cellular connectivity?
spk01: So we call it TACSTEM Black, but I think I know what you meant. There are images of the TACSTEM Black on our website at www.tacstem.com. And just by coincidence, I spent the last two days in TACSTEM in Dayton, Ohio, with the team at Air Force Special Forces. Taxed in Black is a much more rugged implementation and more powerful implementation, and we're on track to launch that as a COTS device commercial off the shelf later this year.
spk02: Interesting. Okay, and then... Lastly for us, any commentary on OUS business outside of NHS in the UK?
spk01: Yeah, another very good question. You know, the NHS has been very supportive and that business in the UK continues to grow sort of middle single digits, right? Four to six percent year on year. We've not been successful gaining reimbursement in other national health systems. And for the short term, for the time being, I would rather make those investments in the U.S. rather than Europe. As our direct-to-consumer business matures, we'll be looking at taking Truvega to Canada and Australia first. Excuse me. And then the U.K. and Western Europe after that.
spk02: Okay. And then lastly, nothing on 24, no guidance or anything on the Europe at first.
spk01: No, we're not going to give guidance. We're comfortable with analyst consensus right now. And we need to see how the launch, how the new product launch goes before we can really say something with confidence about the back half of the year.
spk02: Perfect. Okay, nice readout and full year. Thanks for taking our questions.
spk04: Thank you, Jeff. Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from RK from HC Wainwright. Your line is now live.
spk00: Thank you. Good afternoon, Dan and Brian. Hope you're doing good. So when you closed the quarter and you also said, you know, based on the fourth quarter, it's an annualized rate of 21 million. So what could be the drivers for it to push beyond the annualized number of 21 million in your thinking?
spk01: Oh, you know, look, we've been growing at 100% year-on-year for the last two quarters. And, you know, our full-year growth is, I think we said 75%, 78%. I've got every reason to believe that we'll be able to continue that momentum. Our biggest customer is the VA hospital channel. And we've got more feet on the street every month. And I don't see any slowdown in that channel. The Jerns distribution agreement has tremendous upside. That's a total addressable market of more than 12 million covered lives that we're just now building some prescriber awareness in. And then, of course, there's our two new product lines, Truvega and taxed in that are both starting from, they represent 20% of our business last year, but still very small numbers and a lot of room to grow. So I'm very, very optimistic about things accelerating as we go through this year.
spk00: Yeah, thanks for that. In terms of the Jones Healthcare, can you give us a little bit more sense as how This could mushroom not only in 24, but also in 25 Because I think for the last couple quarters we have been hearing you saying you've been you've been Achieving small revenues. So do you think by this time? When I said by this time by now You have kind of solved all the kinks whatever it is days in the system such that and also have set up enough relationships to for us to see a steady growth in revenues and also becoming meaningful by end of 24?
spk01: Yeah, so getting the infrastructure set up, getting on formulary, educating the prescribers and the clinicians is taking longer than I had hoped. So you're not going to see it as a significant number this quarter. I think it's really a second half of this year, and it's definitely a 2025 story.
spk00: Okay. And then on the tax stem, yes, you got a good start of $1.75 million for the year. And then you also said the funnel is progressively growing. So when you say that, but on the other hand, um, you know, Congress hasn't decided whether they want to run the government or not run the government. Um, so, so where, how do you see this, uh, flow of growth come through? And also, um, you know, you were saying something about first quarter, uh, kind of, um, uh, sequentially, it's not going to be, um, higher than what we saw in the fourth quarter. Can you kind of expand on those comments, please?
spk01: Yeah, that's exactly right. The continuing resolutions have affected some of the contracts that are in process, and our first quarter 2024 tax stim sales are going to be sequentially down from the fourth quarter. That said, these are solid purchase commitments. They're just sliding with the continuing resolutions. And there are many companies that are in this situation that deal with DOD. For us, it's still a very small part of our business. But hope springs eternal that our government will figure itself out. But there's growing demand. for our human performance products. Very exciting.
spk00: Very good. And then the last question from me is on the prescriber front. It's really great to hear that the cash-based prescribers are continuing to increase. I mean, I can sit down and look at this, but because you said this could be a leading indicator, I want to ask you, you know, what sort of a correlation are you seeing in terms of the growth of the prescribers and the revenue? I'm just trying to understand how to think through that growth because it can certainly just grow like crazy over this year, but I just want to understand how that growth could come through.
spk01: Yeah, we don't have, I think The best way to look at it is it's an 80-20 rule. Roughly 20% of those prescribers are generating 80% of the revenue. And so there are two ways to think about it. The first is that it's just a numbers game, right? We have to sign up 100 to get 20 superstars. What we're also going to be doing in the back half of this year is trying to learn what are the characteristics of a high-revenue cash pay practice and how do we identify those characteristics and be more focused on the one hand in recruiting new customers, or are there programs, marketing programs, for example, that we can use for the 80% of prescribers who aren't generating a lot of revenue. So there's still a lot of business model discovery ahead of us.
spk00: Okay. Thank you very much. Thanks for taking all my questions, and good luck. Absolutely.
spk04: Thank you. Next question today is coming from Anthony Vendetti from Action Group. Your line is now live.
spk03: Thanks. I just wanted an update. How you doing, Dan? Just an update on the ongoing clinical trials. Any expectation for readouts in 2024?
spk01: Yeah, so the Novus trial in acute stroke is fully enrolled. I think the last patient, last consult happened last month. So I'm optimistic that we'll see top-line data in July, August, kind of a time frame. And similarly, the Parkinson's GATE trial in Newcastle was fully enrolled at the end of last year, and so I'm hoping we see top-line data in April or May. Actually turning those into publications is going to take much longer, but that top line data in both indications will obviously impact our strategic thoughts about how do we leverage that data into an expanded indication and expanded label.
spk03: Okay, great. And then just in terms of the VA, obviously it's one of your primary channels, what How would you characterize current penetration? I know there's still an opportunity there, but what is the overall opportunity that remains with the VA?
spk01: Sure. I measure penetration two ways. In terms of facilities, we are about 12% of the 1,300 facilities out there now. still a lot of room to grow. But the better number to look at is the number of headache patients. I think there's roughly 600,000 headache patients per year in the VA hospital system. And by that metric, we're just barely 1% penetrated. Now, as we make progress with PTSD, that dramatically increases the denominator and, of course, unfortunately, you know, PTSD has a high prevalence in the VA hospital population. Same with substance abuse, same with Parkinson's and other neurological conditions. So, as we add indications, you know, our denominator gets bigger and our penetration gets smaller and opportunity gets bigger.
spk03: Okay, great. Thanks for the update. Appreciate all the call.
spk04: Thanks. Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
spk01: Thank you, operator. We appreciate everybody joining today's call. I want to specifically say thank you to all of our employees who've been working tirelessly to deliver our amazing therapy to patients. Our team's done a great job of staying nimble, scaling the business, and responding to the needs of our customers and healthcare providers alike, leading to the more than 60% compound annual growth over the last five years. I also want to thank the healthcare professionals and their patients for their loyal support of GammaCore therapy, consumers for their adoption of our Truvega products as a tool to improve general wellness, and our champions at the Air Force and Army Special Forces. You all have a good evening.
spk04: Thank you. That does conclude today's teleconference. Let me disconnect your line at this time and have a wonderful day. We thank you for your participation.
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