electroCore, Inc. (ECOR) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to electroCore Second Quarter Earnings Conference Call and Webcast. Currently, at this time, all participants are in listen-only mode. Later we will conduct the 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 would 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 Frank Amato, Chief Executive Officer and Brian Posner, Chief Financial Officer. Tony Fiorino, Chief Medical Officer will be available for Q&A. Earlier today, electroCore released results for the quarter ended June 30, 2019. A copy of the press release is available on the Company's Web site. 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 risk 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 call contains time-sensitive information that is accurate only as of the live broadcast today, August 13, 2019. And with that, I'll now turn the call over to Frank.

Thanks Hans. Hello everyone, and thank you for joining us today. On May 29th, we announced the comprehensive redeployment and cost-reduction plan intended to focus on three things; current and near-term revenue generating opportunities; streamlining our clinical development program; and reducing our quarterly cash burn to extend our cash runway into the beginning of 2021. We believe that this plan best positions us for long-term success. Therefore, in addition to commenting on our second quarter operating and financial results, I will use the time today to update you on activities and developments since that announcement. Beginning with the second quarter, I'm pleased to report the continuation of positive trends in three previously reported metrics; total prescriptions, refill prescriptions and prescribing physicians. By the end of the second quarter, we had reached approximately 2,500 physicians who had written at least one prescription. This represents an increase of 13% over the nearly 2,200 physicians who had written at least one prescription up through the first quarter of 2019. This growth continues to demonstrate physicians' growing comfort with the efficacy and safety of gammaCore, which unlike drug alternatives, carries no systemic side effects or drug-to-drug interactions. During the second quarter, we also had sequential growth of total prescriptions written, a 14% increase to approximately 7,000 prescriptions as compared to the nearly 6,100 during the first quarter. However, as we indicated last quarter, we believe that the better metrics to measure of performance is prescriptions dispensed and ultimately paid months of therapy. Prescriptions expense in the second quarter totaled nearly 3,800, a sequential increase of 27% from the nearly 3,000 in the first quarter. In addition, during the second quarter, growth in paid months of therapy increased by 52% to 1,023. Taken together, these positive trends contributed to a 52% increase in total revenue over the first quarter or $623,000 in the second quarter. These key metrics most accurately capture our growth trajectory and set the stage for continued revenue growth. Indeed, demand for gammaCore continues to grow. When we announced our redeployment plan, we outlined for high-value revenue channels where the current prescriber base and payer coverage are most concentrated, including regional payers; some of whom have recently amended their medical policies to permit patient access to gammaCore; the Veterans Administration and Department of Defense covered under the federal supply schedule contract effective as of January this year; the United Kingdom, where our recent innovative technology program awards for cluster headache treatment offering patients the potential to get their gammaCore therapy paid for by the National Health Service. And other potential revenue opportunities in the pain management field, including as we will discuss in a moment; workers' compensation providers, which we believe represents a significant revenue opportunity for the company, given the prevalence of workplace injuries resulting in increased headaches among this population. Turning to the federal supply schedule, or FSS, which includes both Veterans Affairs and the Department of Defense. During the second quarter, we shipped 233 units to VA and DoD facilities, representing a significant increase from the 66 units dispensed within the first quarter. Additionally, we saw month-to-month increases in the second quarter from 64 in April to 79 in May, to 90 in June. And July was very strong as well with 115 units shipped during the month. As the VA and DoD ramp, we expect shipments to continue to accelerate. The FSS is a very significant opportunity for electroCore, and we are pleased to see it gaining traction. Revenue attributed to the VA and DoD was 119,000 in the second quarter, up from 33,000 in the first quarter. Our progress with the VA during the quarter is particularly noteworthy given the unique logistical challenges associated with on-boarding individual VA and military treatment facilities. As we teach them last quarter, each of the 33 military treatment facilities and 80 VA centers requires an understanding of how its distribution process works. To-date, we have 35 VA and military facilities that have purchased gammaCore, up from 20 in the first quarter. Turning now to the United Kingdom, where we've generated $165,000 of revenue in the second quarter, up approximately 70% from the $91,000 in the first quarter, and our leading indicators in the UK remain strong. Last month, we announced that the UK's National Institute for Health and Care Excellence, or NIHCE, published draft guidance on the use of gammaCore in cluster headache. They concluded the following, and I quote, "evidence supports the case for adopting gammaCore to treat cluster headache in the NHS or National Health Service. GammaCore reduces the frequency and intensity of cluster headache attacks and improves the quality of life." In the draft guidance, NIHCE highlights that the use of gammaCore in addition to standard of care therapy could save approximately $563 per patient in the first year as compared to the standard of care alone. It is estimated that 25,000 people in the United Kingdom with cluster headache are likely to respond to treatment with gammaCore. The common period for the draft guidelines closed on August 2nd, and we expect the final guidance to be published in late November. Clearly, this would be a significant catalyst that could drive robust growth in that important market. We are particularly pleased with this draft guidance as NIHCE and the NHS among the most rigorous evaluators of new therapeutics and technologies. In the United States, we remained determined to make gammaCore available to the broadest possible patient population. To that end, earlier this week, we announced that we signed an exclusive distribution agreement with Doctors Medical LLC to expand access to gammaCore to patients with workers' compensation injuries. Doctors Medical has contracts with a majority of workers' comp providers across the United States. We're pleased that they will offer gammaCore as a treatment alternative for injury related headache pain. Workers' comp is an entirely new revenue channel for us, and we believe further validates gammaCore as a non-invasive, safe and effective solution for patients suffering from migraine and cluster headache. Payers are responding favorably to gammaCore's non-invasive approach and commercial insurance momentum is building. Clinical and health economic presentations have been happening weekly across the nation with PBMs and local payers. We are in advanced contractual discussions with large national and regional payers. The standard processes is to complete negotiations and low the rebate agreements on the first day of the following quarter, which we expect could be as early as Q4 2019, or Q1 or Q2 of 2020. We look forward to updating you on the payer determinations for coverage and reimbursement. Now turning to our clinical programs. As we detailed when we announced our comprehensive redeployment plan, we are tightening our focus and advancing only those studies designed to expand our current label. An area where we remain acutely focused is migraine prevention. And to that end, we continue to advance our company sponsored PREMIUM II studies during the second quarter. To-date, we have enrolled and randomized more than one third of our target of 350 patients. We remain on track to complete enrollment in the first half of next year, consistent with our prior guidance. Last month FDA accepted our 510(k) submission to expand gammaCore's label into migraine prevention, and we expect to see the agency's decision by the end of the year. And while PREMIUM II is the only company-sponsored trial that we are advancing currently, our gammaCore technology continues to be evaluated in a number of investigator initiated studies, largely funded with grants from third-party agencies. In Turkey, the VENUS study is currently evaluating gammaCore in acute stroke. It is possible that we could see some interim data from this study early next year. The gap PTH study, a posttraumatic treatment and prevention of headache trial, expected to enroll 60 patients. We expect this trial to kick off this quarter. The genius RA study, a rheumatoid arthritis trial in patients who've had an inadequate response to biologics, three of the four sites in that study are now active and enrolling. We're pleased to announce that during the quarter, three investigators have received grants totaling over $2 million to build on their prior clinical work with gammaCore in type II diabetes and gait disturbance in Parkinson's disease patients. During the quarter, we received statistically significant data from an eight week 40 subjects sham-controlled trial in Sjogren's syndrome for reducing fatigue, a commonly reported symptom. In May, our collaborators from Stanford University presented a poster at Digestive Week, detailing results in idiopathic gastroparesis with improvements in both symptoms and gastric emptying time. These data match results from a prior study in a more refractory gastroparesis patient population. And later this quarter, in September, we will be presenting several posters at the international headache Congress in Dublin. That concludes our clinical update. Before turning the call over to Brian to review the financials, I'd like to take a moment to address our CEO transition, which is currently underway. As previously announced, I will be stepping down as Chief Executive Officer. In person interviews for my successor with our Board of Directors are scheduled to begin in the early September. I am committed to assist the board and the new CEO to ensure the smoothest possible transition. I am grateful and proud to have had the opportunity to work with such a world-class team. We built a strong foundation upon which the company can continue to drive growth. Now at this point, I'll turn the call over to Brian.

Thanks, Frank. Before getting into the numbers, we thought it might be helpful to review how we recognize revenue from our various revenue streams. Beginning in the U.S., we sell product directly to Bioridge Pharma, our distribution partner at which time we recognize revenue. Bioridge Pharma in turn sells to the various specialty pharmacies that dispense the product to patients. Order quantities from Bioridge Pharma are dependent on paid prescriptions, which are tracked but our paid prescriptions are just a leading indicator of potential revenue for the company down the road since they will help to determine inventory levels at Bioridge. Turning to the VA. We recognize revenue as shipped to the particular VA sites. Cardinal Health is handling DoD orders, so they will be our customer for DoD related shipments. And in the UK, we sell to the National Health Service and NHF England via the Innovation Technology Payment. Now to the numbers. For the quarter ended June 30, 2019, electroCore reported net sales of $623,000, an increase of approximately $210,000 or 50% compared to $410,000 in the first quarter of 2019. The major drivers of this growth Q2 versus Q1 were the VA/DoD channel, which grew approximately 260%, the UK's channel grew 70% and the U.S. Commercial pay channel grew approximately 31%. Total OpEx for the second quarter of 2019 were $12.7 million as compared to $16.4 million for the second quarter of 2018. The decrease in operating expense was driven primarily by a decrease in marketing and stock-based compensation costs. The second quarter of 2019 included a restructuring charge of $850,000 in connection with the previously announced significant adjustment to the deployment of personnel and resources across the organization. Operating loss for the second quarter of 2019 was $12.4 million as compared to an operating loss of $16.2 million in the second quarter of 2018. Cash and cash equivalents and marketable securities at June 30, 2019, totaled $41.1 million as compared to $68.6 million at December 31, 2018. Net cash burn was $11.2 million for the quarter ended at June 30, 2019, which was in the range of $11 million to $11.5 million that we provided when we announced our cost reduction plan. By comparison, our net cash burn was $16.2 million in the first quarter. Now looking ahead, we expect 2019 revenue to be substantially below previous annual consensus estimates, but still expect to see continued strong sequential quarterly growth. Our cost savings plan has been implemented, resulting in a significant headcount reduction and postponement of some clinical trials. We continue to look for additional savings in non-headcount related expense. As previously stated, beginning with the third quarter of 2019, we anticipate our average quarterly cash burn to be less than $7 million at least through 2020. It should be noted that the cash burn for some quarters maybe in excess of $7 million due to working capital adjustments and one time payments. Based on our current cash resources, revenue and expense forecasts, we believe that we will have adequate resources to fund our operations into the beginning of 2021. And now, I'll turn the call back over to Frank.

Thanks, Brian. We're pleased with our performance during the second quarter and continued growth across our key metrics. As our payer outreach efforts continue to bear fruit, we expect these positive trends to continue. There are still very large patient populations who do not yet have access to this groundbreaking therapy. Thus far in 2019, we have built significant momentum and we look forward to providing future updates on our progress. And with that, operator, please open the call up for questions.

Thank you. We'll now be conducting a question-and-answer session [Operator instructions] Thank you. Our first question comes from the line of Ahu Demir with Noble Capital. Please state your questions.

My first question will be on the Express Scripts. Are we still on track to finalize the agreement in the third quarter 2019 for that, and also 100 million covered lives that is expected in the fourth quarter?

So with Express Strips, we remain in conversations with them. In fact, they started a GPO, a group purchasing organization, in Switzerland recently and we've had, to this point, multiple phone calls with their group over their around contract details. If you may recall that a key indicator for getting a contract in place there was ensuring that they had access to our coding through their First Databank compendia. First Databank has requested our codes and they are now working on putting a digital module in place. There been multiple press releases from Express Scripts indicating that that digital module is on pace and being completed. So it's likely that we could have a contract in place before the end of this year. And that will be a key indicator for whether we reach the 100 million lives plateau that we have been shooting for as a goal with the organization. So when we have the PBM contracts loaded and especially Express Scripts, that will be to the possibility of having the 100 million lives.

And my second question will be on the payer front again. On the policy amendment for Highmark, providing reimbursements for monthly refills. Is that finalized or are we still expecting that to finalize in the third quarter?

So Highmark has changed their policy along with Blue Cross Blue Shield of North Dakota. And those policy updates allow patients to get prescribed gammaCore. The reimbursement for the therapy since we don't have a contract in place with, either Highmark or Blue Cross Blue Shield North Dakota, is dependent upon what those entities want reimbursement to the therapy at this point in time. On the medical benefit side, we are offering a contract, meaning we will offer rebate for access to gammaCore. I know our managed market team is been in discussions with Highmark, and I believe are beginning discussions with Blue Cross Blue Shield of North Dakota. Blue Cross Blue Shield of North Dakota is one of the Prime Therapeutics accounts to PBM that manages about half of the Blue's lives. So we're also working with Prime Therapeutics, and have offered a contract, a rebate contract, with them as well on both the pharmacy side and the medical side. So it's just a matter of navigating the local plans to get a contract in place, so that we have a set price that they're expected to pay for both refills and for the initial therapy, or for when their patient receives the device.

Okay. Thank you very much. Thanks for taking my question, and congrats on the positive trajectory.

[Operator instructions] Our next question today is from the line of Josh Schimmer with Evercore. Please proceed with your question.

Can you give us a sense where you are in terms of the target population percent lives covered? To what extent is reimbursement still a gating step towards driving prescriptions and adoption? And what if any other obstacles are there towards achieving a swifter rate of growth of prescriptions, whether in terms of access, awareness, or appreciation to product in cluster or migraine headaches? Thank you.

So, the gating factor for us remains getting rebate contracts in place with PBMs and also with local payers through, right now, Prime Therapeutics as the PBM for about half of those Blue's lives that I mentioned earlier. The CVS Caremark agreement we have in place still requires physicians to fill our paperwork, and prioritize for a majority of the patients within that plan, not all of them. We have offered contract with CVS Caremark and have been gone back and forth with our contract -- in various terms we've offered. So once that gets completed and is loaded that will likely get us access to a large majority of those folks without having to have paperwork filled out by the physician. It still might be a prior off, but it's electronic in the way it's dispensed to the physician today. And then with respect to the other plans, we have Express Scripts, Prime Therapeutics, and other plans in the United States that we're currently negotiating with. In addition to that, we are following-up on legislation that was published on opioids last year, which state directly that neuromodulation therapies could be a good alternative to opioids in the marketplace and CMS is looking at technologies, like ours, to code that in a way that patients will get access to the therapy without having to go through the traditional durable medical equipment pathway that most of these CMS improvements naturally follow. So I would say that access to a large group of the population is going to come by way of those reimbursement contracts and those rebate contracts. In the meantime, without restating everything we just covered. We do have good access and good growth beginning in the VA/DoD segment. We have the workers' compensation opportunity. We have the UK bearing fruit for us. And we're changing medical policies at the local Blue's plans and other payers, local and regional payers that will ultimately allow us to contract directly with those folks. So I think that in 2019, we're making far more headway than we had in the past with respect to these payer opportunities. And it's been delayed, as everyone knows, since our -- what we communicated during the IPO just last year.

Thank you. At this time, I will turn the floor back to Mr. Frank Amato, for closing comments.

Okay. Thanks again for joining our call this afternoon. We look forward to providing our next quarterly update in November. Thank you, everyone.

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