Q4 2023 electroCore, Inc. Earnings Call
Participants
Daniel Goldberger; Chief Executive Officer, Director; electroCore, Inc.
Brian Posner; CFO; electroCore, Inc.
Jeffrey Cohen; Analyst; Ladenburg Thalmann & Co. Inc.
Swayampakula Ramakanth; Analyst; H.C. Wainwright & Co.
Anthony Vendetti; Analyst; Maxim Group LLC
Presentation
Operator
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.
Daniel Goldberger
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 31st, 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 fact could 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. And 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 accurate only as of the live broadcast today, March 13th, 2024, electroCore was founded in 2005 to commercialize the use of our proprietary non-invasive 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 31st, 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 five years ago. 2023 was capped off by a fifth consecutive record revenue quarter with sales of $5.2 million for the three 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 continue to continue 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 two new nonprescription general wellness product lines in late 2022. Vega is a direct-to-consumer brand and taxation 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 therapies 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 level government services, giving level the right to list and distribute certain prescription gammaCore products into the federal market. Level is a service-disabled veteran-owned small business and SDVOSD. offering, medical and pharmaceutical goods and services to federal health care providers. Listing products with level 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, NHS and Indian Health Services, IHS., which we believe serve up to 21 million patients combined for Vega is currently available exclusively through our e-commerce platform at triple w. dot trivago.com.
We are positioning true Vega as a direct to consumer general wellness product for stress relaxation, sleep and mental acuity. We are carefully managing our true Vega advertising spend as we fine tune our messaging and prepare to launch our next generation mobile app enabled general wellness product through Vega plus.
Full year 2023 to Vega net sales were approximately $1 million for Vega 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 true Vega return rates, which continue to be 11% to 12% of shipments.
We believe that the true Vega business could scale nicely if we maintain or improve these metrics and we're excited about the anticipated launch. I've two Vega plush next month, patched in 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 triple w. dot taxed in.com.
For the full year ended December 31, 2023, we recorded $1.75 million of tax in sales. Sales funnel for this product continues to grow as word spreads across active-duty military units. The potential human performance benefits provided by tax them. In parallel, we've developed a second generation product known internally as taxed in 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 purchased in bulk for pilot deployments, and we expect to see them revenues in the first quarter of 2024 to be down sequentially due to the timing of these. Our physician dispense cash pay channel, including GC, direct and G. concierge 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 31st, 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 Jones health care LLC that we believe will add more than 12.5 million covered lives within a select managed care health system. The business model with Journeys is similar to how we work with the VA hospital system. Geron's handles adjudications billing and collections, while electroCore shipped 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 churns 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 currency 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 US dollars to USD1.8 million in the full year 2023 as compared to USD1.6 million for the full year 2022. Revenue from channels outside the US 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 24th, 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 study entitled noninvasive vagus 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 anti-diarrheal medications.
On October 1020 23, we announced two 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 two weeks of treatment as well as a trend towards a three day decrease in average hospitals. Second study entitled noninvasive vagus nerve stimulation in acute ischemic stroke, also known.
As you know, this is a prospective randomized clinical trial with blinded outcome assessment being conducted at the Leiden University Medical Center. 150 patients with ischemic stroke were randomly allocated one-to-one to nVNS for five 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?
Brian Posner
Thank you, Dan. Net sales for the year ended December 31st, 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 US and abroad and revenue from the sales of our nonprescription, general wellness and human performance, Sebago and Paxton 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 31st, 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 stimulator.
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 our 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.
Daniel Goldberger
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 products. The launch of our first general wellness product to Vega 350 was received favorably by the market as evidenced by greater than $1 million of revenue in its first full year of sales and the efficiency of our media spend to drive those sales 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 to Vega plus product next month to Regal plus will be the first mobile app enabled cervical non-invasive vagus nerve stimulator on the market and will leverage many of the patents involving the control of the stimulator using a smart phone device.
And we've secured over the last few years. We'll continue selling through Vega products through our e-commerce site, triple w. dot trupanion.com and hope to add additional channels and product offerings to increase the lifetime value of each customer. We will continue to monitor our KPI.s and metrics and adjust our investments 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 tax system and second generation tax in black product sales in protection brand are likely to be lumpy as active duty units purchased in bulk for pilot deployments. 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 [1099] reps in the field, managed by our small team of territory business managers and supported by our customer experience team. The 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 post-traumatic stress disorder, opioid use disorder and other clinical opportunities. We have lots of positive momentum leading into 2024, including one continued growth in our US prescription headache business in both the VA and commercial channels to anticipated launch of our next-generation trivago plus product next month for general wellness, mental acuity and sleep, driven by ongoing consumer marketing efforts, three further development of the taxing brand and launch of taxed and black later in the year for human performance in the active duty, military and civilian crossover for revenue through our distribution agreement with children's health care 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.
Question and Answer Session
Operator
Thank you. (Operator Instructions) Jeffrey Cohen, Ladenburg Thalmann.
Jeffrey Cohen
Just a few procedures to fuse, so on June 10th to Vega plus eventually replace surveys? Or do you feel as if the functionality may offer different advantages for different users?
Daniel Goldberger
It's a great question, Jeff. We're going to launch next month, our two data plus we're going to continue to offer the true Vega three 50 at a lower price point. They've got different feature sets and that will allow us to do some some price discovery. It'll allow us to learn more about what feature sets are more important to us to different customer segments. So for the foreseeable future, I think we're going to be offering at least two different product configurations in the direct-to-consumer to Vegas.com channel.
Jeffrey Cohen
Okay. And then can I segue that over detached in this tax to nice quarter by the way and the taxed in the Tungsten plus, what is the difference between that and the tax dollars are related to our power or amplification or cellular connectivity?
Daniel Goldberger
So it's we call it taxed in black, but I think I know what you meant there are images of the text in black on our website at a triple w. dot pacsun.com.
And and just by coincidence, I spent the last two days in Dayton, Ohio with the team at Air Force Special Forces untaxed in black is a much more rugged implementation and more powerful implementation. And we're on track to launch that as a as a COTS device commercial off the shelf later this year.
Jeffrey Cohen
Interesting. Okay. And then lastly for us on any commentary on OUS business outside of NHS in the U.K. yet?
Daniel Goldberger
Another very good question. And the or the NHS has been very supportive in that business. In the U.K., Canada continues to grow sort of middle single digits rate, 46% year on year. We've not been successful in 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 take taking true Vega to Canada and Australia first excuse me, and the UK and West Western Europe after that.
Jeffrey Cohen
Okay. And then lastly, nothing on '24. No, no guidance or anything on the year at the first.
Daniel Goldberger
Now we're not going to give guidance and we're comfortable with them with analyst consensus right now and it is okay. And we need to see how the launch of a new product launch goes before we can really say, something's with confidence about the back half of the year.
Jeffrey Cohen
Perfect. Nice read on full year.
Operator
RK, H.C. Wainwright.
Swayampakula Ramakanth
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 I'm sorry to push beyond the annualized number of $21 million in your thinking out?
Daniel Goldberger
Yes. Look, we've been growing at a 100% year on year for the last two quarters and your full year growth is I think we said 75%, 78%. I've got every reason to believe that that we'll be able to continue that momentum our biggest customer is the VA hospital channel, and we've gotten more feet on the street every month. And I don't see any slowdown in that channel. The Journeys distribution agreement, it 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 two new product lines to Vega and taxed in 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.
Swayampakula Ramakanth
Yeah, thanks. And then in terms of the Jones healthcare, can you give us a little bit more sense as how and this could March from 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 you've been achieving small revenues. So do you think by this time managed by this time by now you have kind of solved all the kinks whatever it is days in the system, such that and also have set up enough relationships for us to see a steady growth in revenues and also becoming meaningful by end of '24?
Daniel Goldberger
Yes. So the I'm 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 this quarter. I think it's really a second half of this year, and it's definitely a 2025 story.
Swayampakula Ramakanth
And then on the tax? 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 by this. But the other hand, some Congress hasn't decided whether they want to run the government or not run the government now and if so, where how do you see this flow on growth come through.
And also on you are saying something about Q1 kind of down 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?
Daniel Goldberger
Yes, that's exactly right. At the continuing resolutions have affected some of the contracts that are in process and our first quarter 2024 taxed in sales are going to be sequentially down from the fourth quarter. That said, these are solid purchase commitments there, just sliding with them with the continuing resolutions. As you know, there are many companies that are in this situation that deal with the with DoD. And for us, it's still a very small part of our business, but hope springs eternal that that our government will figure itself out, but there's growing demand for our Human Performance Products. Very exciting.
Swayampakula Ramakanth
And then the last question from me is on the prescriber front and 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 I 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 on the? I'm just trying to understand how to think through that growth because it can certainly come and just just grow like crazy over that was this year. But I just want to understand how that growth could come through?
Daniel Goldberger
Yes, we don't we don't have -- I think the best way to look at it is it says it's an 80/20 rule. Roughly 20% of those prescribers are generating 80% of the revenue. And so there are two ways to think about it. The first is that it's just a numbers game, right? We 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.
Operator
Anthony Vendetti, Maxim Group.
Anthony Vendetti
I was just wondering if you could update -- Hey, Dan. Just an update on the ongoing clinical trials. Any expectation for readouts in 2024?
Daniel Goldberger
Yes. So on the Novoste trial in acute stroke. He's fully enrolled. I think the last patient last canceled happened last month. And so I'm optimistic that we'll see top line data in July, August kind of a timeframe. And some and similarly at the Parkinson's gate trial in Newcastle was fully enrolled at the end of last year. And so I'm hoping we see top line data in 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 and our strategic thoughts about how do we leverage that data into an expanded indication, an expanded label.
Anthony Vendetti
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?
Daniel Goldberger
Sure. So we are -- as I measure penetration two 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. data dramatically increases the denominator. And of course, unfortunately, you know, PTSD. has a high prevalence in the VA hospital population and same with substance abuse, same with Parkinson's and other neurological conditions. So as we add indications are our denominator gets bigger and our penetration gets smaller and opportunity gets bigger.
Operator
Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.
Daniel Goldberger
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 healthcare providers alike, leading to the more than 60% compound annual growth over the last five 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 Tru Vega 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.
Operator
Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
