Greetings and welcome to the electroCore's First Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Rich Cockrell. Thank you, sir. You may begin.

Thank you all for participating in today's call. Joining me are Dan Goldberger, Chief Executive Officer; Brian Posner, Chief Financial Officer and Dr. Peter Staats, electroCore's Chief Medical Officer. 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 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 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 06, 2021. And with that, I'll turn the call over to Dan.

Thank you, Rich. Hello, everybody and thank you for joining us today. I am thrilled to report that Q1 2021 revenue was a record $1.2 million. Furthermore, net cash used for the quarter decreased over 50% to $4.1 million for the first quarter of 2021 from $8.4 million for the first quarter of 2020. For first quarter of 2021, total revenue of $1.2 million increased approximately 30% sequentially from $928,000 in the fourth quarter of 2020 and approximately 64% from $734,000 in the first quarter of 2020. We believe that our revenue growth is driven by the various initiatives we put in place during 2020 and the gradual relaxation of pandemic restrictions. When Brian and I joined the company in 2019, we focused on reporting paid months of therapy as a metric to illustrate progress and as a lead indicator of net revenue growth. Over the last few months, the business has become more diverse through the addition of stocking distributors in a few international territories and the soft launch of gammaCore Sapphire D provisioned with 36 months of therapy to meet the CMS definition of durable medical equipment. As such paid months of therapy no longer tells the whole story and you'll see increased variability in average selling price per month, as different product and revenue streams are combined. We will continue to report paid months of therapy where it is an appropriate metric. The Federal Supply Schedule or FSS which encompasses the Department of Veterans Affairs, Department of Defense and other government and military agencies continues to be our most important revenue channel. During the first quarter of 2021, clinician meetings with our staff began to increase within the VA as the number of COVID-19 cases decreased within the system. A total of 79 VA and DOD military…

Thanks, Dan. We have seen a lot of positive progress in our R&D efforts over the past few months. In December of 2020, we announced that gammaCore was selected for evaluation in a randomized controlled study for the treatment of opioid use disorders. The study is being run by Dr. Douglas Bremner of Emory University in collaboration with the Georgia Institute of Technology and the City University of New York, and it's supported by the National Institute of Drug Abuse. The study will enroll 40 subjects in two separate study groups of 20 subjects each. Each study group will randomize 10 subjects to be treated with nVNS and 10 with Sham stimulation. The study will assess the ability of nVNS to decrease opioid cravings in subjects with a history of opioid use disorder who are stable on medication, as well as examine the possible mechanisms that might facilitate this clinical effect. In February of 2021, we announced the completed enrollment of the TR-VENUS study, which is evaluating the safety and feasibility of nVNS for the acute treatment of stroke. We are enthusiastic about the potential that nVNS offers a potential new stroke treatment and we look forward to reporting top line data from the TR-VENUS trial later this week - I'm sorry, excuse me, later this year. Also, in February of 2021, we announced the publication of a pilot study in the Journal Colorectal Disease that evaluated the effectiveness of nVNS in improving postoperative ileus following elective major colorectal surgery. Postoperative ileus is a serious condition that can result in surgical complications and extended hospital stays. While only a pilot study, the group using nVNS showed a greater improvement in several clinical important endpoints, such as a decrease in the amount of oral morphine equivalent use post-surgery compared to the…

Thank you, Peter. For the quarter ended March 31 2021, electroCore reported net sales of $1.2 million as compared to net sales of not 928,000 in the fourth quarter of 2020. The sequential increase in revenue was due to increased sales across all our revenue generating channels, with particularly strong growth in the VA DOD channels. Revenue for the quarter ended March 31, 2020 was $734,000. Revenue from the government channel increased 33% sequentially to 679,000 in the first quarter of 2021 from 509,000 in the fourth quarter 2020 and increased 49% as compared to 454,000 in the first quarter of 2020. Revenue from outside the US increased sequentially to 380,000 in the first quarter of 2021 from 311,000 in the fourth quarter of 2020. OUS revenue was 276,000 during the first quarter of 2020. OUS revenue for the first quarter of 2021 included $45,000 from our new distributors in Eastern Europe and Australia. Net revenue from the commercial channel was 121,000 for the first quarter of 2021, as compared to 54,000 for the previous quarter. Net revenue from the commercial channel during the first quarter of 2020 was not material. Gross Margin for the first quarter of 2021 was approximately 70%. Going forward, our margins will continue to be highly dependent on revenue and product mix. Total operating expenses for the first quarter of 2021 were approximately 6.2 million as compared to 6.4 million last quarter and 8.4 million for the comparable period in 2020. SG&A expenses for the period were approximately 5.7 million compared to 5.4 million in the fourth quarter of 2020. SG&A expenses declined approximately 13% from approximately 6.6 million for the comparable period in 2020. The decrease in expense was due to the cost reduction plan put in place during 2019 and 2020, including the…

Thank you, Brian. We're pleased with our performance during this quarter. I also want to point out that we're in a very healthy financial position with the cash of $25.5 million on the balance sheet as of March 31, 2021. As the pandemic recedes, I'm excited about the prospect of building on sequential revenue growth in our VA DOD headache market and achieving accelerated growth of our UK business, as the MedTech Funding Mandate takes effect over the course of the year. Our unique HCPCS code became effective on April 2021 and we'll continue to work diligently with select regional payers to provide reimbursement of nVNS therapy. We've recently announced five new international distributors and I look forward to continued expansion of that channel throughout the year. Longer term, label expansions beyond cluster and migraine headaches supported by the exciting ongoing clinical developments that Dr. Staats discussed, could dramatically increase the total addressable market for nVNS therapy. Finally, I want to again recognize our dedicated staff for working steadfastly through the pandemic disruptions, and thank the healthcare professionals that prescribe gammaCore and their patients for their loyal support of gammaCore therapy. At this point, I'll ask the operator to open line for questions.

[Operator Instructions] Our first question is coming from the line of Ryan Zimmerman with BTIG. Please proceed with your question.

Hi, because actually Carolyn on Brian. Thanks for taking my questions. First one for me, appreciate the guidance for the second quarter. Could you provide some color on how you expect the VA DOD channel to recover through the balance of the year? And then I do have one follow up. Thank you.

Yeah. So thanks for making time. Look, nobody knows where the pandemic is going. We are starting to see the VA hospitals open up and allow our sales reps to come back in but a lot of the providers, a lot of the prescribers are still working remotely, so it's difficult for us to assess what the trajectory is going to be. So I'm optimistic that we'll steadily get back to whatever normal is with our sales force functioning in the VA systems. We've been able to open up some new facilities so far this year, which is always a lot harder to open up a new customer than to merely sell more into an existing customer, so steady as she goes but I think the future is pretty bright.

Understood. Great. Thank you. And then on that post-traumatic headache study, you just announced initiation of that study earlier this week. What are some of the milestones or timing we should expect as that study progresses? Thank you again for taking my questions.

Yeah, we've gotten into the pattern of reporting on enrollment statistics. And, again, we're optimistic that enrollment will proceed relatively quickly. They've got a pretty solid cohort of patients to draw from. I hope we can complete enrollment towards the end of this year, but it may slide into the beginning of 2022.

Great, thank you.

Thank you. Our next question is coming from the line of Sean Kang with H.C. Wainwright. Please proceed with your question.

Hi. Thank you for taking my question. So I have a question regarding the VA study with two mono post-traumatic headache. So how is the current treatment for this indication? Post-traumatic headache is different from the cluster headache, which can be treated by gammaCore with the current label?

Peter, are you available to take that?

Sure. Yeah, that's good. I'm happy to take it. Sure. So, right now we are on label for anything that physician would say is a migraine or for a cluster headache. But there are a variety of specific headaches that wouldn't exactly be considered on label for a migraine or for a cluster attack, and some of those would fall under the category of post-traumatic headache. So I think of this as broadening our portfolio of what we can make claims on. But right now, many of the patients with post-traumatic headache would present as migraines and patients could use our therapy today but we will be able to broaden our claims. And I also think mechanistically, we should be particularly effective in a post-traumatic type of headache. And I think that would again, potentially broaden what we can do not just in the military system but if you think about all of the patients out there who have had a concussion or post-traumatic headache, have some trauma to the head and are left with debilitating headaches, this will open up a whole new avenue for us as well.

I see. That's good. And one more question regarding investor-initiated studies. So, of course, there are multiple ongoing investor-initiated studies but then what kind of data do you hope to get from this study? And then at what point do you want to pursue that particular label expansion? And what kind of - what would be the next step when you make the decision?

All very -

Dan, do you want me to take this? Go ahead.

Yeah, I've got it, Peter. So, all very good questions. And we haven't laid out the pathway to a label extension publicly yet. But, as Peter said, as we gain experience, specifically with post-concussion patients, we'll be able to formulate our regulatory plans. We've got a good relationship with the agency and the high road would be to wait until the trial reads out before we file anything with the agency, but we may be able to look at some more accelerated pathways.

I see. Thank you. That's helpful.

Thank you. Our next question is coming from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Hi, this is actually Jeremy on the line for Anthony. Just two questions.

Hi, Jeremy.

One, more of a high level, just to piggyback off the last question about the trials. I mean, I know obviously, there's really you have to have positive data before you could commercialize anything, but what do you think or what do you hope would be your next focus? And what do you consider the most opportunistic commercial opportunity out of all the trials that are going on now or any sort of indication?

So that's a great question. As Peter mentioned, we've got pretty broad coverage for most forms of primary headache. I shouldn't say clearance, rather, for most forms of primary headache. And so with the GAP-PTH trial we're now extending into secondary headaches, so post traumatic headaches. That's an obvious direction for us to go. Beyond that, as you know, there is work going on again, in many cases financed by DARPA or the VA system in two mild traumatic brain injury and treatment of post-traumatic stress disorder. We also recently announced a DARPA funded trial looking at opioid use disorder, which, as you know, is a very important objective at many levels of government and certainly in our healthcare systems. So, in terms of label expansion, I think those are where we get not only the most benefit to patients, but also have the largest commercial opportunities.

Okay. That's helpful and then one last question. On the commercial payer side, I know, with the new code coming into effect April 1, what is your view, provide any more details or specifics, how you're approaching the regional payers? What your strategy is to try and get them on board?

Yeah, so we've gotten - and I think I mentioned it in the prepared remarks. We've gotten one positive benefit determination and we're talking to that insurance company about pricing now. We've been in touch and had conversations with many others. Not surprisingly, the first reaction is send us more data. And so we're continuing to add to the database on not just clinical performance but healthcare economics. We have a large and growing patient cohort in the United Kingdom, and positive determinations from NHS which crosswalk very nicely to what we're trying to do with the US insurance companies. And even more compelling is the large and growing database of success in the VA hospital where our therapy is free to patients and is covered 100% by the VA system. So it never goes as fast as we would like but we are making progress and we'll continue to report on positive coverage decisions as they become available.

Okay, thank you. That's all for me.

[Operator Instructions] Our next question is coming from a line of John Vandermosten with Zacks. Please proceed with your question.

Good afternoon, everyone. Perhaps you can run through the partnerships that you have from highest to lowest in terms of revenue potential. The Western Europe one stands out to me is the top one just because there's a big population there that's well able to pay but you know, you have a bunch of others and maybe there's some characteristics there that make them particularly valuable.

So it's hard for us to handicap right now the size of the opportunities and how quickly we'll be able to penetrate. I agree with you that the Western Europe, Benelux is probably the largest ultimately. Australia is - actually can be surprisingly productive. Qatar is a very, very small country, but as you know, they're relatively wealthy and can probably support higher end user pricing, and it's a cash pay market. So I think you're going to see small, relatively small, initial orders over the second half of 2021 and I'll be better able to answer who the early adopters are and what their trajectory for 2022 will be based on that early data.

And just between Australia and Canada, any sense of which one there is the bigger one?

Probably Australia.

Okay. And then these agreements, are they all designed somewhat similarly in terms of duration and take or pay requirements?

Yeah, they're not take or pay. They are - we sell inventory at a transfer price. And there are minimum obligations to maintain exclusivity in the out years.

Okay. And a question on gross margin. It was pretty good this quarter, the highest I've seen in a while and should we expect it to stay there or are there some one-time items in there that won't repeat or is this kind of a base for the future?

Go ahead, Brian.

Yeah. Hi, John. It's Brian.

Hi, Brian.

Nice to speak to you. I think it's really going to be dependent on our revenue levels and our product mix. It's not - there was no really one-time item driving that other than very good quarter revenue wise. So that was which resulted in absorbed labor and overhead. So it's really about revenue and product mix. I mean, we had a 1,000,001 [ph] of revenue in Q3, and we had a 68% gross margin then, so we can definitely be in this ballpark going forward as long as those two metrics stay favorable.

Okay, great. Yeah. It sounds like you're leveraging the fix partners of that.

Yes, exactly.

Yeah, last one for me is just - you mentioned that the DOD and VA are the most important customers right now. But with all these new partners, how do you anticipate the revenue mix looking at a year or two, distributors versus the national health in the UK and then VA DOD? How do you see that pie chart looking?

Yeah. Great question, John. So, right now, we're looking at sequential growth in the mid-teens to maybe low-20s in our UK channel, as we get - as the MedTech Funding Mandate takes hold and we have a larger addressable market. We think our initiatives with the Federal Supply Schedule into the VA and DOD can continue to grow 25% to 30%, sequentially. And the big opportunity in 2022 is that we establish more reliable insurance company reimbursement in the commercial channel in the US. That's foundational work that we're going to be doing in the second half of 2021 and I believe will be in 2022, our largest revenue component.

Okay, great. Well, thank you for taking the questions.

Absolutely.

Thank you. I'm not seeing any additional questions at this time. So I'd like to pass the floor back over to management for any additional closing comments.

Thank you, operator and for all of you that dialed in for what turned into a relatively lengthily business update. We greatly appreciate your patience and support. And I hope all of you are able to stay healthy and we're all praying that this pandemic moves on. Have a good evening.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.