Good day, ladies and gentlemen and welcome to electroCore's First Quarter 2020 Earnings Conference Call and Webcast. Currently, at this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] Also as a reminder, this conference call is being recorded. At this time, I'd like to turn the conference over to your host Hans Vitzthum of LifeSci Advisors. Please go ahead, sir..

Thank you, operator, and thank you all for participating in today's call. Joining me are Dan Goldberger, Chief Executive Officer; and Brian Posner, Chief Financial Officer. Dr. Peter Staats, electroCore's Chief Medical Officer will be available for Q&A. Earlier today electroCore released results for the quarter ended March 31, 2020.

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 this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any statements contained in this call that are not statements of historical facts, should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, our examination of operating trends and our future financial expectations are based upon the company's current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission.

electroCore disclaims any intention or obligation except as required by law to update or revise any financial projections, or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast today May 14, 2020.

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

Technology at the Neural Interface. That paper is available via open access. Turning now to our operating results. By the end of the first quarter, more than 2,850 American physicians have written at least one gammaCore prescription, up from 2,735 at the end of the fourth quarter of 2019.

This metric continues to demonstrate physicians' growing awareness of and comfort with the efficacy and safety of gammaCore therapy. During the first quarter of 2020, we had 20% sequential growth in paid months of therapy rising to 2,633 from 2,195 in the fourth quarter of 2019.

Total revenue for the first quarter 2020 was $734,000 as compared to $675,000 in the fourth quarter of 2019. Total revenue for the first quarter 2020 was within the guidance range of $700,000 to $750,000 that we provided in our April 17 update.

Consistent with prior quarter's revenue growth was driven primarily by our continued focus on two specific opportunities where we are reliably getting paid. First, the Federal Supply Schedule eligible entities, which encompass Veterans Administration Department of Defense, and Indian Health Service.

And second, the United Kingdom's National Health Service. Beginning with the Federal Supply Schedule or FSS recall that FSS encompasses approximately 10 million covered lives some 400,000 of whom saw VA healthcare providers for headache, in 2018. Last year, we redeployed significant sales resources to focus on this important channel.

And we continue to see positive growth in our key metrics, as a result. 64 Veterans Administration and Department of Defense military treatment facilities, purchased gammaCore products during the first quarter of 2020, as compared to 54, during the fourth quarter of 2019.

Also, during the first quarter of 2020, the company shipped 1,084 paid months of therapy to VA and DoD facilities, up 31% from 829, during the fourth quarter of 2019. Growth in paid months of therapy led to a 20% sequential increase in revenue, from the VA and DoD to $454,000 in the first quarter of 2020 from $378,000, in the fourth quarter of 2019.

We were on a solid sequential growth trajectory before the pandemic. But our access to physicians and their access to patients have been severely impaired, since mid-March. Importantly, we continued to sell into new facilities, including the bellwether facility, Walter Reed Medical Center, subsequent to the end of the quarter.

Through April 2020 and the first week of May, paid months of therapy are relatively flat, compared to the first quarter. We shipped 374 months of therapy to DoD, VA facilities in April 2020, compared to an average of 361 per month, from January through March.

That's despite the fact that the COVID-19 pandemic has impaired our ability to travel and our ability to gain access to prescribing physicians to the VA and DoD facilities.

We started shipping gammaCore directly to patients earlier this year, which enables VA-based physicians to provide their patients a totally virtual experience, by hosting a telehealth console, prescribing gammaCore, delivering the therapy directly to the patient at home, who is subsequently trained on our web portal.

We believe that our virtual engagement can be a competitive advantage over injected therapies, which require an in-person consultation with a health care professional. We're encouraged by our current performance, against a very challenging business environment.

In recent days, we've seen a few hopeful signs that certain VA hospitals are planning to host in-person meetings, with our field sales staff and are starting to see patients in clinic.

Regarding the United Kingdom, we previously reported that, the National Institute for Health and Care Excellence, in its final guidance, recommended the use of gammaCore for the acute and preventive treatment of cluster headache in adult patients, across the National Health Service.

Additionally, the NHS has indicated to us that it will again extend the previously announced innovation technology payment program that program which was first extended through April 2020 has now been extended through September 2020 and makes gammaCore eligible for the new medtech funding mandate mechanism, which could lead to long-term sustainable reimbursement of gammaCore.

We view these developments as important additional validations of the benefits of nVNS therapy in general and gammaCore specifically. During the first quarter of 2020, total revenue attributed to outside the U.S. decreased to $277,000 from $294,000 in the fourth quarter of 2019.

The decrease in revenue is largely due to the timing of revenue recognition and currency exchange fluctuations. Paid months of therapy outside the U.S. in the first quarter of 2020, actually increased to 1,008 from 961, in the fourth quarter of 2019.

Not surprisingly, the impact of the COVID-19 pandemic in the United Kingdom has put pressure on new patient starts. And that could affect our ability to grow revenue from the United Kingdom channel, in the remainder of this year. Turning now to our U.S.

commercial activities, in the pharmacy benefit management and commercial payer channels, our distribution partners report continued slow growth in paid months of therapy. We experienced sequential growth in the first quarter. And that trend appears to have continued into April 2020.

This cadence is notable because late last year, we reallocated sales resources away from the commercial channel. It's too early to conclude that the commercial channel has turned a corner. But our recent announcement that we gained access to millions of ESI lives, on a preferred basis is one potential driver of paid months of therapy.

We'll provide a more comprehensive commercial update, in August. In terms of the clinical update we previously announced that, as an additional cost savings measure and in light of the FDA clearance in migraine prevention that received in March 2020, we made the difficult decision to terminate the Premium II study.

While we are terminating early, we have collected a significant amount of data from the study prior to the termination, which we're in the process of analyzing. We note that while the original enrollment target in the study was 340 to 360 patients, we were ultimately able to enroll approximately 220 to 230 prior to termination.

Even with the lower enrollment Premium II is the largest randomized controlled clinical trial of the device in migraine prevention in the United States. We look forward to seeing that data as we work to further penetrate the very large adult migraine prevention market.

There are several other investigator-initiated trials of gammaCore, underway in addition to SAVIOR 1 in Spain and SAVIOR 2 in Pittsburgh that we discussed previously. These trials are exploring the use of gammaCore in indications that would be considered more exploratory.

Still those studies speak to the potential broad clinical utility of non-invasive vagus nerve stimulation and we look forward to results from ongoing studies as they become available. In preparation for our shareholder meeting on June 12, 2020, I wanted to recap recent changes to our Board of Directors.

We announced at the end of March that our Chairman, Carrie Cox would be stepping down from the Board effective April 1, 2020 and that directors Nick Colucci and Jim Tullis would be stepping down prior to the annual meeting.

Carrie, Nick and Jim provided invaluable guidance to the company during a critical time in its evolution and I want to personally thank them for their service. Carrie was succeeded as Chairman by our current independent Board member Michael Atieh.

We also announced the appointments of John Gandolfo, Thomas Patton, and Peter Cuneo effective April 2, 2020. John, Tom, and Peter are all proven organizational leaders with diverse medical device industry and turnaround experience that will serve us very well as we continue to execute on our more streamlined commercial plan.

I look forward to their contributions. On the topic of our shareholder meeting among other things, we are asking shareholders to give the Board authority to implement a reverse split at some time in the future, if and only if, it becomes advisable to preserve our NASDAQ listing or to improve the liquidity of our common stock.

While NASDAQ is temporarily tolling the minimum bid price rules for maintaining a listing until June 30, 2020 we cannot be assured that we will be able to maintain a $1 bid into the future. At this point I'm going to turn the call over to Brian for a review of our financials and other guidance items.

Brian?.

Thanks, Dan. For the quarter ended March 31, 2020 electroCore reported net sales of $734.000 compared to $675.000 in the fourth quarter of 2019 and within the guidance range of $700,000 to $750,000 that we provided in our April 17 update.

As Dan indicated, the increase in revenue compared to fourth quarter of 2019 reflects continued growth in sales within the VA and United Kingdom. Paid months of therapy shipped to the VA and DoD increased 31% sequentially to 1084 in the first quarter of 2020 from 829 in the fourth quarter of 2019.

Revenue from the VA and DoD increased 20% sequentially to $454000 in the first quarter of 2020 from $378,000 in the fourth quarter of 2019. The discrepancy in growth rate between paid months of therapy and revenue was largely due to the launch of a 93-day offering at a lower average sales price per paid month of therapy.

Paid months of therapy shipped outside the U.S. increased 5% sequentially to 1008 in the first quarter of 2020 from 961 in the fourth quarter of 2019. Revenue from outside the U.S. decreased sequentially to $277,000 in the first quarter of 2020 from $294,000 in the fourth quarter of 2019.

The discrepancy in growth rate between paid months of therapy and revenue was driven by the timing of revenue recognition and currency exchange fluctuations. Total operating expenses for the first quarter of 2020 were approximately $8.4 million down approximately 42% compared to $14.5 million in the comparable period in 2019.

SG&A expenses declined approximately 40% to $6.6 million in the first quarter of 2020 from approximately $11 million for the comparable period in 2019 primarily driven by a decrease in sales and marketing expenses consistent with the cost reduction plan that we first implemented in June 2019.

R&D expenses decreased by $1.9 million or 56% to $1.5 million in the first quarter of 2020 versus the year ago period, this reduction is consistent with the company's strategy of significantly reducing its near-term investment in research and development.

During the first quarter of 2020, the company recorded a restructuring and severance-related charge of $365,000 in connection with the transition to its new Chief Medical Officer. GAAP net loss from operations for the first quarter of 2020 was $8 million as compared to a GAAP net loss of $13.9 million in the first quarter of 2019.

Adjusted EBITDA from operations for the first quarter of 2020 was a loss of $6.4 million as compared to the adjusted EBITDA net loss from operations of $13.4 million for the same period in 2019.

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

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

Cash and cash equivalents and marketable securities at March 31, 2020 totaled approximately $15.6 million as compared to approximately $24.1 million at December 31 2019.

Subsequent to the end of the first quarter the company raised $5 million due to partial drawdown of its stock purchase agreement with Lincoln Park Capital and sales of stock to certain affiliates and existing shareholders of the company including some members of the company's Board of Directors.

The company also received gross proceeds of $1.2 million from the sale of New Jersey state operating losses and $1.4 million from the Federal Paycheck Protection Program. Regarding the PPP, we note that official guidance and interpretations of the requirements of the program have been limited and have been changing over time.

Despite our good faith belief that we properly satisfied all eligibility requirements for the Paycheck Protection Program loan there has been increasing scrutiny of public companies that receive loans and there can be no assurance that we will not become subject to regulatory or other scrutiny and a request for repayment of some or all of the loan.

Net cash used for the quarter ended March 31, 2020 was approximately $8.4 million down from $9.4 million for the fourth quarter of 2019. The first quarter of 2020 included use of cash of approximately $1.7 million for previously committed purchases of inventory.

The company expects its average quarterly cash burn to be lower for the balance of 2020 because it does not have any future material inventory purchase obligation and the company is taking steps to further reduce its operating expenses.

Specific to the second quarter, we anticipate that revenue will be in excess of $700,000 and that operating cash burn will be between $5 million and $6 million. The company's expected cash requirements for 2020 and beyond are based on the commercialization success of its products and its ability to reduce operating expenses.

There are significant risks and uncertainties as to its ability to achieve these operating results including as a result of the potential adverse impact on its business from the COVID-19 pandemic.

Due to these risks and uncertainties the company may need to reduce its activities significantly more than its current operating plan and cash flow projections assumed in order to fund its operations beyond the first quarter of 2021. And now I'll turn the call back over to Dan..

Thank you, Brian. We're pleased with our performance during the first quarter and I believe we've set the stage to continue to drive long-term growth.

And while the ongoing COVID-19 pandemic has made it difficult to forecast the trajectory of our business for the remainder of this year, key trends remain positive and we continue to take actions that are consistent with our ultimate goal of making our noninvasive vagus nerve stimulation technology, gammaCore available to the broadest possible patient population.

At this point, we'll ask the operator to open the line for questions and I want to note that Dr. Peter Staats is available with us, our Chief Medical Officer. Thank you all..

Thank you. At this time, we’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Ryan Zimmerman with BTIG. Please proceed with your question..

Thank you. Thanks for taking the question. The migraine prevention indication, came quicker than I think most expected certainly we expected.

I'm just wondering if you can give us some color Dan in terms of what you're seeing since that's come about? How providers are taking advantage of that indication relative to historically, and kind of what we should expect as a result of that?.

Yes. Thanks for the question Ryan. And we didn't spend much time on the earnings call on that point. There's always been a cohort of prescribers that while they're enthusiastic about gammaCore were waiting for the migraine prevention label so that there could be a full package, a full headache solution.

And we were starting -- we've been starting to reach back out to that cohort, but of course with COVID-19 and the limitations on our sales force we really haven't been able to take advantage of the expanded label just yet.

So it's given our sales guys a reason to get engaged with our existing customers and most importantly to go back to customers who have expressed interest in the past and decided to wait until we have this complete solution. So we're very upbeat about it.

It's just frustrating that in the short run with the pandemic and physicians' ability to get new patient starts that it's a little bit slower than we would like..

Yes, understood. And then gross margins were up nicely this quarter.

I wonder if you could just talk about, kind of, was that related to some of the revenue recognition internationally? Was that as a result of purchasing all your inventory? I'm just wondering if you can parse out what drove that and what the durability of your gross margins at these levels are relative to what you were kind of -- where you were at in late 2019? Thank you..

Yes. So you're very sharp to pick up on that. Part of it is the aggressive expense reductions that Brian and Mike Romaniw, our operations executive have engaged in really beginning in the summer of 2019 and various initiatives that are coming together. Part of it is increasing volume being able to spread fixed expenses over a larger revenue base.

And our expense reduction initiatives are all in place, but we still have a lot of room on the overhead absorption number. So you're going to see gross margins continue to expand just with the arithmetic of higher volumes over the same fixed expense..

Okay, got it. And then -- that’s it for me. I’ll hop back in queue and I apologize. Thanks for taking the question..

Thanks, Ryan..

[Operator Instructions] The next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question..

Thank you. This is RK from H.C. Wainwright..

Hi, RK..

Good afternoon, Dan and Brian. I hope you're doing well. A few questions from me. The first being on the paid months and the growth in the paid months, to 1,084 from 829 previous quarter. How much of these were new subscribers versus folks who kind of rewrote the scripts..

So, RK, it's exactly the right question to ask. We have not historically been breaking out new prescriptions from refilled prescriptions. And we're going to -- now that we've established our information systems, we'll look at doing that in the future. But for the time being we're not breaking out with that detail..

Okay. That's fine. Fine. So a couple of questions on how the VA is operating. First of all, VA not -- being a federal operation and does not have to deal with every state and the uniqueness of each state's regulations. What are you hearing in terms of how they're opening up their facilities to treat patients? That's, of course, part A.

And the part B of that question is, how is the telehealth working out between the VA neurologists and their patients? I'm just trying to understand how easy or how difficult is it for these physicians to work with their patients?.

So you're absolutely right RK. Each VA campus is making their own decisions based on the census of virus patients in their ICUs and what's going on in their local communities. We've had around the country several of the VA Hospitals are now starting to schedule live meetings with our sales professionals. So that's a very good sign.

And in several of the VAs in certain parts of the country are starting to see patients in headache clinic again. That said, our virtual implementation of gammaCore therapy has been very, very well received.

You're probably aware, but telehealth has been a technology initiative within the VA system for several years now and it's really accelerated over the last eight weeks, because of the pandemic.

And many of our hospital customers have really embraced the notion that a neurologist can do a telehealth consult with a patient and they can prescribe gammaCore therapy and we can ship the therapy directly to the patient and train and in-service the patient in their home. The patient does not have to come into the facility at all.

That's in contrast with other second and third-level therapies that are injections that have to be delivered by a healthcare professional. And so, we've been able to move up in the continuum of care by virtue of the fact that we can completely leverage the telehealth platform that the VA system is so excited about..

Very good. Since you are a big student of the device market, I'm just trying to understand how this nVNS therapy is being considered, because obviously you lost some leverage during the last six to eight weeks.

But at the same time this is not a device, it's not like a procedure where there is a pent-up demand once things open up, whereas this is -- there is a loss, I would think, it's a loss of a script of.

How do you see it when things come back? Do you see a good upsurge in demand? Or as I said, it's not like a procedure, so how should we think about? If there is a pent-up demand, how will it get worked through the system?.

Yes. So it's a complicated and constantly evolving situation. Before we understood the pandemic, we were very excited about our plans for growth in the United Kingdom based on the NICE guidance and getting solid reimbursement from National Health Service.

And we were very excited about scaling our operations in the United States calling on the FSS entities the VA hospitals and the DoD facilities. I'm -- since the pandemic I think we are relieved that our business is flat. So many other businesses have been dramatically reduced, but our business has stayed flat.

And so I'm increasingly optimistic that we're going to be able to return to that solid 20%-plus sequential growth as the VA system in the United States returns to normal. Now who knows when that is. That's the base case.

On top of that as Ryan mentioned, the migraine prevention label came ahead of our expectations and we do believe that there is significant pent-up demand from a cohort of prescribers that are excited about now being able to use gammaCore therapy for both acute and preventative treatment.

And the notion that gammaCore therapy treats four very important indications, prevention and treatment of cluster headache and prevention and treatment of migraine headache is an important sort of Swiss Army Knife in the armamentarium for the headache specialists.

So I do think there is pent-up demand as our sales executives can get out and start to detail the expanded indication. Unfortunately, we really don't know when we'll be able to hit the ground on that..

Okay. And for my last question, I'm trying to expand on your Swiss Army Knife. So how are you working with the FDA on the EUA application and trying to get into the -- into treating COVID-19 patients? What sort of conversations are you having with the regulation -- regulatory body right now on the EUA? And any color at all would be helpful. Thank you.

Thank you for taking all the questions..

Yes, of course. And thank you for the question. As you know the EUA process is relatively new to many of us. We've had ongoing correspondence communication with the agency. They've asked questions, we've answered the questions.

But we really don't -- can't speculate on the timing of that clearance, nor can we speculate on whether or not it will ultimately be cleared or denied. That said, the most important issue is not so much the EUA as it is demonstrating clinical efficacy.

And in the peer-reviewed publication in Neuromodulation talking about some clinical experience with patients that are benefiting from the therapy, getting these two investigator-initiated trials up and running SAVIOR-1 and SAVIOR-2 in conversations with other investigators in other parts of the country about how to deploy the therapy either in a formal study or in sort of an anecdotal use, it's all very, very exciting right now..

Thanks again. Good luck..

Thank you..

Thank you. [Operator Instructions] Our next question comes from Dave Berkeley [ph] with JMP. Please proceed with your question..

Sorry guys. I got a little late. I guess the one quick one with the prevention label. Can you remind us what the protocol is? I recall thinking that patients will be using it potentially much more frequently.

And from your studies I can't recall the exact protocol, but could you talk about sort of what you think -- how people will use it with that labeling indication.

And should that not mean that your volume -- the number of times people would need treatment would accelerate?.

Peter, do you want to address that question?.

Sure let me take it. Happy to take a stab at that. So the device itself comes with up to 30 devices built into it and with it clearly that we could use up to 24. I'm not worried. I anticipate that with the cluster prevention, its six doses up to -- I'm sorry it's three doses twice a day will be part of the prevention.

And with the migraine, its two doses I believe it's twice a day. And we don't think that the device -- I'm sorry the device was built to accommodate both a preventive indication and the acute indication. I don't foresee a problem with us running out of doses on a daily dose per patient.

I think that is in fact one of the great advantages of our device..

And if this -- the prevention starts to take hold in the accounts that you're selling into I mean would you expect that -- I guess that your average patient would be using it more frequently maybe than they currently are for just prevention..

Yes. So I think look just kind of setting us back a step. One of the things that is really an advantage for us is, that we are an acute device that also offers a preventive therapy within one device. And the second advantage that's happening right now and I think Dan mentioned this is that, this device can be prescribed versus telehealth.

All of the other things that we do as health care providers not all but many of the other things that we do as health care providers are injections or nerve blocks or infusions which require a face-to-face visit.

I think the fact that we got a preventive indication for migraine, we are also serving the need as an acute indication for each of the patients in conjunction with the patient we can decrease the COVID exposure with a telehealth visit, I think all of those things are kind of pooled together in Dan's Swiss Army Knife that makes this a more usable therapy.

So, I personally am optimistic about that. Time will tell. The obvious challenges are our sales team can't get in to see the patients as much as we would like. But compared to everybody else at least we have a telehealth approach to this..

Thank you, for that and good luck and congrats..

Yes, thank you, very much..

[Operator Instructions] Thank you. At this time, we have no additional questions. I will turn the floor back to Dan Goldberger for additional remarks..

Thank you operator and we greatly appreciate everybody's kind attention and support and we'll be back to report in a few months on our second quarter progress. Stay healthy out there. Good bye..

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