electroCore, Inc.
NASDAQ:ECOR
Earnings Call Analysis
Q4-2023 Analysis
electroCore, Inc.
In a narrative reminiscent of a company on the rise, the full year ended December 31, 2023, showed an impressive revenue increase of 87% over the previous year, capping off with a record fifth consecutive quarter of revenue growth at $5.2 million — a substantial 103% leap from the fourth quarter of the prior year. Such growth led to an approximately $21 million annual run rate entering 2024, underlining a compound annual growth rate over 60% since leadership changes five years prior.
Signaling financial health, gross margins grew from 81% to 83% for 2023, showcasing cost efficiency and robust profitability of the company's products and services.
Launched four years prior, the prescription headache venture, spearheaded by flagship gammaCore therapy, has blossomed, amassing substantial sales including a notable 89% surge to $9.6 million in the VA hospital channel alone. The company's expansion into this segment reveals less than 1% of the VA's total addressable market has been tapped, setting a tone of untapped potential.
The introduction of two nonprescription wellness brands, Truvaga and TAC-STIM, surpassed expectations, generating combined initial sales of $2.75 million. Truvaga's direct-to-consumer approach yielded about $1 million in sales with a promising media efficiency ratio suggesting sustainable business scaling. The anticipation around Truvaga Plus indicates optimism for the brand's continued success. TAC-STIM catered to the high-stakes niche of military personnel, accruing $1.75 million in sales for its inaugural year, positioning it for potential crossover to civilian sectors.
The company fortified its distribution channels through strategic partnerships such as Lovell Government Services for federal market supply, and Joerns Healthcare, LLC to tap into a managed care system potentially worth significant revenue in H2 2024 and beyond. These alliances, combined with pipeline developments and label extensions for gammaCore, signify a robust strategic growth plan.
An 18% growth in revenue from international channels, primarily from the United Kingdom's National Health Service, reflects the global appeal and reach of the company's prescription offerings outside the United States.
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Hello, and welcome to the electroCore Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. [Operator Instructions]
At this time, I'd like to turn the call over to Dan Goldberger, CEO. Please go ahead, sir.
Thank you all for participating in today's electroCore earnings call. My name is Dan Goldberger, I am the Chief Executive Officer of electroCore and I'm also a member of the Board of Directors. Joining me today is Brian Posner, our Chief Financial Officer.
Earlier today, electroCore 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. 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 accurately only as of the live broadcast today, March 13, 2024.
electroCore was founded in 2005 to commercialize the use of our proprietary noninvasive 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 stimulators 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 noninvasive 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 noninvasive 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 5 years ago.
2023 was capped off by a fifth consecutive record revenue quarter with sales of $5.2 million for the 3 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 continued 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 U.S. and the National Health Service in the United Kingdom, cash pay sales in the commercial channel and through certain managed care systems.
We launched 2 new nonprescription general wellness product lines in late 2022. The Truvaga is a direct-to-consumer brand and TAC-STIM for human performance is for our active duty military personnel. Both new brands exceeded our expectations in their first full year sales and are driving excitement about the future.
The VA hospital channel continues to be our largest customer. You'll recall that our gammaCore prescription therapy is free to patients covered by Veterans Administration benefits, representing about 9 million covered lives across approximately 1,300 health care 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 gammaCore 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 gammaCore 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 nonexclusive distribution agreement with Lovell Government Services, giving Lovell the right to list and distribute certain prescription gammaCore products into the federal market.
Lovell 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 Lovell 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.
Truvaga is currently available exclusively through our e-commerce platform at www.truvaga.com. We are positioning Truvaga as a direct-to-consumer general wellness product for stress, relaxation, sleep and mental acuity. We are carefully managing our Truvaga advertising spend as we fine-tune our messaging and prepare to launch our next-generation mobile app-enabled general wellness product, Truvaga Plus.
Full year 2023 Truvaga net sales were approximately $1 million. Truvaga 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 Truvaga return rates, which continue to be 11% to 12% of shipments. We believe that the Truvaga business could scale nicely if we maintain or improve these metrics, and we're excited about the anticipated launch of Truvaga Plus next month.
TAC-STIM 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.tacstim.com.
For the full year ended December 31, 2023, we recorded $1.75 million of TAC-STIM 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 TAC-STIM.
In parallel, we've developed a second-generation product known internally as TAC-STIM 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 TAC-STIM 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 gConcierge, 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 Joerns 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 Joerns is similar to how we work with the VA hospital system. Joerns handles adjudications, billing and collections, while electroCore 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 Joerns 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 Joerns 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 was generated in the United Kingdom by prescription gammaCore 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 nVNS to decrease the use of acute rescue medications for exacerbations of nausea due to gastroparesis or functional dyspepsia. The study is entitled Noninvasive 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 antinausea medications.
On October 10, 2023, we announced 2 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 Noninvasive 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 2 weeks of treatment, as well as a trend towards a 3-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. 50 patients with ischemic stroke were randomly allocated 1:1 to nVNS for 5 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?
Thank you, Dan. Net sales for the year ended December 31, 2023, increased 87% as compared to the year ended December 31, 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 U.S. and abroad, and revenue from the sales of our nonprescription general wellness and human performance, Truvaga and TAC-STIM products.
Gross profit of $13.2 million increased $6.3 million for the year ended December 31, 2023, compared to gross profit of $7 million for the year ended December 31, 2022. Gross margin was 83% and 81% for the years ended December 31, 2023 and 2022, respectively.
Total operating expenses in the full year ended December 31, 2023 were approximately $32.5 million, as compared to $29.9 million for the full year ended December 31, 2022. Research and development expense of $5.3 million for the year ended December 31, 2023 decreased by $200,000 from $5.5 million during the full year ended December 31, 2022. This decrease was due to cost-cutting measures, offset by our targeted investments to support the next generation of the company's noninvasive 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 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 31, 2023 totaled approximately $10.6 million, as compared to approximately $18 million as of December 31, 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.
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, Truvaga 350, was received favorably by the market as evidenced by greater than $1 million of revenue in its first full year 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 Truvaga Plus product next month.
Truvaga Plus will be the first mobile app-enabled cervical noninvasive vagus nurse 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 Truvaga products through our e-commerce site, www.truvaga.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 TAC-STIM and second-generation TAC-STIM Black products. Sales of the TAC-STIM 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 gammaCore 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 90-99 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 gammaCore to treat posttraumatic 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 Truvaga Plus product next month for general wellness, mental acuity and sleep driven by ongoing consumer marketing efforts. Three, further development of the TAC-STIM brand and launch of TAC-STIM Black later in the year for human performance in the active duty military and civilian crossover.
Four, revenue through our distribution agreement with Joerns Healthcare for the sale of prescription gammaCore within a select managed care health system. Five, prescription gammaCore 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.
[Operator Instructions] Our first question today is coming from Jeffrey Cohen from Ladenburg Thalmann.
Hi, Dan and Brian, how are you?
Good, thank you. How are you, Jeff?
Good. I'll keep it to just a few. So do you intend that Truvaga Plus eventually replace Truvaga? Or do you feel as if the functionality may offer different advantages for different users?
It's a great question, Jeff. We're going to launch next month our Truvaga Plus. We're going to continue to offer the Truvaga 350 at a lower price point. They've got different feature sets. And that will allow us to do some price discovery. It will 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 2 different product configurations in the direct-to-consumer truvaga.com channel.
Okay. And then could I segue that over to TAC-STIM? This TAC-STIM -- nice quarter, by the way, on the TAC-STIM. The TAC-STIM Plus, what is the difference between that and the TAC-STIM? Is it related to power or amplification or cellular connectivity?
So we call it TAC-STIM Black, but I think I know what you meant. There are images of the TAC-STIM Black on our website at www.tacstim.com. And just by coincidence, I spent the last 2 days in Dayton, Ohio with the team at Air Force Special Forces.
TAC-STIM 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.
Interesting. Okay. And then lastly for us, any commentary on OUS business outside of NHS in the U.K.?
Yes, another very good question. The NHS has been very supportive in that business in the U.K. continues to grow sort of middle single digits, right, 4% to 6% 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 Truvaga to Canada and Australia first, and then the U.K. and Western Europe after that.
Okay. And then lastly, nothing on '24, no guidance or anything on the year -- first quarter?
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.
Perfect. Okay. Nice readout and full year.
[Operator Instructions] Our next question is coming from RK from H.C. Wainwright.
Good afternoon, Dan and Brian. Hope you're doing good. So when you closed the quarter and you also said, based on the fourth quarter, it's an annualized run rate of $21 million. So what could be the drivers for it to push beyond the annualized number of $21 million in your thinking?
Look, we've been growing at 100% year-on-year for the last 2 quarters. And 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 Joerns 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 2 new product lines, Truvaga and TAC-STIM, 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.
Yes. In terms of the Joerns 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 of quarters, we have been hearing you saying you've been achieving small revenues. So do you think by this time, when I say by this time, by now, you have kind of solved all the kinks, whatever stays in the system, such that -- and also have set up enough relationships for us to see a steady growth in revenues and also [indiscernible] meaningful by end of '24?
Yes. So the -- 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 in this quarter. I think it's really a second half of this year. And it's definitely a 2025 story.
Okay. And then on the TAC-STIM, 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, Congress hasn't decided whether they want to run the government or not run the government. So where -- how do you see this flow growth come through?
And also, you were saying something about first quarter kind of, sequentially, it's not going to be higher than what we saw in the fourth quarter. Can you kind of expand on those comments, please?
Yes. That's exactly right. The continuing resolutions have affected some of the contracts that are in process. And our first quarter 2024 TAC-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 product. It's very exciting.
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, 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.
Yes. 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 2 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.
But 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.
Our next question today is coming from Anthony Vendetti from Maxim Group.
I was just wanting if you had an update -- hey, Dan, just an update on the ongoing clinical trials, any expectation for readouts in 2024?
Yes. So the NOVIS trial in acute stroke is fully enrolled. I think the last patient last consult happened last month. And so I'm optimistic that we'll see top line data in July, August kind of a time frame.
And similarly, the Parkinson's gait 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.
Okay. Great. And then just in terms of the VA, obviously, it's one of your primary channels, how would you characterize current penetration? And I know there's still an opportunity there, but what is the overall opportunity that remains with the VA?
Sure. So we are -- I measure penetration 2 ways. In terms of facilities, we are about 12% of the 1,300 facilities out there now. So 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, 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, our denominator gets bigger and our penetration gets smaller and opportunity gets bigger.
Thanks. 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.
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 has done a great job of staying nimble, scaling the business and responding to the needs of our customers and health care providers alike, leading to the more than 60% compound annual growth over the last 5 years.
I also want to thank the health care professionals and their patients for their loyal support of gammaCore therapy. Consumers, to their adoption of our Truvaga 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.
Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.