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.

Thank you, Hans. Hello, everyone, and thanks for joining us today. I'm going to begin with an operational update, before turning the call over to Brian to review our financial results. You'll recall that electroCore is in the early stages of commercialization of our proprietary gammaCore therapy for headache patients. Before getting into the specifics, however, I want to lead with an update on COVID-19 and both the challenges and opportunities that we are experiencing as a result of the ongoing pandemic. It goes without saying that, the continued health and safety of our employees and external constituents remains of utmost importance. electroCore currently qualifies as an essential business under New Jersey state guidelines and our operations remain active. We serve patients, who are managing cluster headache and migraine conditions and remain committed to ensuring that these vulnerable individuals have access to our non-invasive vagus nerve stimulation or nVNS gammaCore therapy to treat their headache pain. The company has responded to the crisis by developing and deploying a multifaceted set of operational and financial initiatives designed to minimize disruptions to our normal business activities, and preserve its ability to execute our long-term growth objectives. To protect the safety, health and well-being of employees, customers, suppliers and communities, we are following federal state and local guidelines, to ensure safety in all facilities, including increased frequency of cleaning and disinfecting, physical distancing practices, requiring most non-production-related team members to work remotely, where possible, business travel restrictions, cancellation of events and limitations on visitor access to our facilities. The company is manufacturing and shipping products on schedule and is managing its inventory and supply chain to minimize disruptions. While the pandemic has caused unprecedented disruptions in business activities across the globe, we're doing everything possible to continue to execute on our growth plans,…

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…

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.