electroCore, Inc. (ECOR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Dan Goldberger. I'm the Chief Executive Officer and a member of the Board of Directors of electroCore, Inc. Will the meeting please come to order? I'd like to welcome you to the 2020 Annual Meeting of Stockholders of electroCore, Inc. Due to the ongoing COVID-19 pandemic, we're holding this year's annual meeting as an entirely virtual meeting. Stockholders who require technical assistance during the meeting can call Broadridge's technical support line at the number listed on the virtual meeting website. I'd like to introduce the Chairman of our Board of Directors, Michael Atieh, who will act as Chairman of this meeting.

Thank you, Dan. I would also like to welcome and thank each of our shareholders who are attending this meeting. And I would now like to introduce the other directors of the company and the officers of the company joining us this morning. Participating in the meeting today are the following directors: Peter Cuneo, J.P. Errico, Dr. Thomas Erato, John Gandolfo, Trevor Moody, Dr. Stephen Ondra and Thomas Patton. Also in attendance is Nicolas Colucci, who is retiring from the Board today; and James Tullis, who is completing his term of service and has elected not to stand for reelection this year. I would like to recognize Nick and Jim and thank them for their dedicated service to the company through these past years. Also with us today is Brian Posner, Chief Financial Officer of the company; and Peter Staats, our Chief Medical Officer. Also participating in the meeting today are from Dentons US LLP, outside counsel to the company, Ira Kotel and Nathan Hyman. And from KPMG LLP, the company's independent auditors, Nick Tafuri, Daniel Martin and Tom Serluco. Brian Posner will act as Secretary of the meeting. Also participating in the meeting is Christopher Woods from American Election Services, who has been appointed to act as the inspector of elections. A link to the agenda for today's meeting is available on the virtual meeting website at the bottom right-hand side of the web page. As set forth in the agenda, we will first address the business of the meeting and the results of the stockholder vote. We will then proceed with a stockholder update presentation from Dan Goldberger, followed by an opportunity for stockholder Q&A. The presentation will be viewable at the top of the virtual meeting web page. Before we proceed, we need to cover some legal formalities. The Secretary of the meeting has received an affidavit of mailing. From the transfer agent, establishing that notice of this meeting was duly given. A copy of the notice and the affidavit of mailing will be incorporated into the minutes of this meeting. All stockholders of record at the close of business on April 20, 2020, are entitled to vote at the annual meeting. Our first order of business at this meeting is to determine one of the shares represented at the meeting, either in person or by proxy, are sufficient to constitute a quorum for purpose of transacting business. Mr. Woods, do you have a report?

Yes, Mr. Chairman. The stockholders list shows that holders of 35,547,491 shares of common stock of the company are entitled to vote at this meeting. They are represented in person, or by proxy, 24,121,471 shares of common stock, representing in excess of the majority of all shares entitled to vote at this meeting. And therefore, a quorum is present. I have also filed the oath of the inspector of election.

Thank you. Because holders of a majority of shares entitled to vote at this meeting are represented in person or by proxy, I declare a quorum has been met in this meeting to be duly convened for the purpose of transacting such business that may properly come before it. No stockholder proposals were received by the company by the required deadline and so there are no such proposals to consider at this meeting. We will now turn to the matters to be voted on. Item number one to be voted on today is to approve and adopt amendments to the company's certificate of incorporation to declassify the Board of Directors and make related changes. This proposal must be approved by at least 2/3 of the outstanding common stock of the company. The second proposal is to elect 3 directors, Mr. Joseph Errico, Mr. Trevor Moody and Mr. Thomas Patton, to the Board for a term of office expiring at: One, the 2022 Annual Meeting of Stockholders, if item number one to declassify the Board is approved; or two, the 2023 Annual Meeting of Stockholders, if Item number one to declassify the Board is not approved. Directors are elected by plurality vote, which means that if each director receives a single vote, he will be elected to the Board. The third proposal is to ratify the selection of KPMG LLP as the company's independent registered public accounting firm for its fiscal year ending December 31, 2020. This proposal must be approved by a majority of shares present in person are represented by proxy at this meeting. The fourth proposal is to authorize the Board in its sole discretion to file amendments to the company's certificate of incorporation to: One, affect a onetime reverse stock split of the company's common stock at a ratio of between 1 share and 5 shares and 1 share for 20 shares; and two, in conjunction therewith, to reduce the number of authorized shares of common stock available for issuance from 500 million shares to 200 million shares. This proposal must be approved by a majority of the outstanding common stock of the company. The fifth proposal is to authorize, pursuant to NASDAQ listing Rule 5635(d), the issuance of more than 19.99% of the company's issued and outstanding shares of common stock, pursuant to the purchase agreement between Lincoln Park Capital Fund, LLC and the company. This proposal must be approved by a majority of shares present in person or represented by proxy at this meeting. I declare the polls open for voting on these 5 items. Any stockholder who has not yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Stockholders who have sent in proxies or voted via telephone or internet and do not want to change their vote, do not need to take any further option -- actions. This polls -- the polls will be open for an additional 2 minutes, during which time we will pause the proceeding. We will now pause for voting. [Voting]

We now have all the votes, and I now declare the polls closed. I now request the inspector of election, Mr. Woods, to canvass the votes and proxies and to submit a certificate as to the preliminary voting results.

Mr. Chairman, we can proceed.

Will the inspector please present a preliminary report of the results of voting?

A preliminary count of the votes and proxies has been completed, and the proposal to declassify the Board of Directors has not been approved. Each of the nominees for election to the Board of Directors has been duly elected. And the selection of KPMG LLP as the company's independent registered public accounting firm for its fiscal year ending December 31, 2020, has been ratified. The proposal to conduct a reverse split of the company's common stock and reduce the number of authorized shares of common stock available for reissuance has not been approved, and the issuance of more than 19.99% of the company's issued and outstanding shares of common stock pursuant to the purchase agreement with Lincoln Park has been approved.

Thank you, Christopher. I note that the final vote tally will appear in a Form 8-K to be filed with the Securities and Exchange Commission on or before June 18, 2020. At this point, I would like to ask our Chief Executive Officer, Dan Goldberger, to share some information with you about the company's business. A copy of the presentation should be visible on your virtual meeting screen.

Thank you, Mike, and thank you all for attending today. You should see the forward-looking statement Slide #2, and there will be a test on the contents of this slide at the end of the presentation. Slide #3 is a brief update of the company. There's a picture of our flagship gammaCore Sapphire device and our all-important ticker ECOR. We're talking to you today from our headquarters in Basking Ridge, New Jersey, where we are wearing masks and following the physical distancing guidelines instituted by the state of New Jersey and the governor's office. On Slide #4, the smiling faces of our management team. I joined the company in October of 2019, coming up on 6 months here. Brian, who's here with us, joined the company roughly a year ago. Thrilled that we were able to bring Peter Staats, MD, back to the company. He has been with the company as a founder and in various roles over the years and continues to be a tremendous resource for electroCore. Eric Liebler, who's been with us several years focusing on neurology. Mike Ruberio has been heading up our U.S. sales function. Iain Strickland has been heading up our international sales function. And Mike Romaniw, as VP of Operations, has been keeping the lights on and the doors open and building product and shipping products and maintaining all of our regulatory compliance issues. On Slide #5, many of you are aware of our investment thesis. We have a platform therapy in non-invasive vagus nerve stimulation, initially on label for treating headache, for the treatment and prevention of cluster headache and the treatment and prevention of migraine, in the United States. We have broader indications outside the United States under the CE mark. We'll talk a little bit about our more recent initiative in treating reactive airway disease, secondary to COVID. We have a subscription-based recurring revenue model and a very, very strong IP portfolio, thanks to the good science that was done in the early days of the company. Slide #6. Again, our flagship gammaCore Sapphire device, the first FDA-cleared non-invasive vagus nerve stimulator. This is a personal use handheld device for prevention and treatment of cluster headache and migraine headaches. On Slide #7, some of the benefits of non-invasive vagus nerve stimulation. The vagus nerve is well understood and affects or interacts with multiple organs and systems, has ultimately multiple mechanisms of action. The company has invested in doing good science and establishing evidence for a variety of future treatments and indications. As currently implemented, it's ideally suited for use by a consumer in the home environment in their daily life for self treatment and is very, very, very safe and complementary to existing care. Specifically for headache, we've done a lot of peer-reviewed science to establish the basis for not just the regulatory clearance, but the regular use and utility of the therapy. In the United Kingdom, the NICE, late last year, published an economic analysis that showed that not only is gammaCore clinically beneficial but properly used, can save the healthcare system substantial amounts of money. On Slide #8, we're talking about the large market opportunities. Migraine clearly affects many millions of Americans and similar numbers outside of the United States. Triptans represent the first-line therapy standard of care, but many patients are dissatisfied or unresponsive to Triptans, and that creates a very large unmet opportunity for gammaCore therapy. In cluster headache, much smaller demographic, but much more acute need for FDA-cleared therapies. And gammaCore, in many cases, is the only FDA-cleared therapy for certain cluster headache patients. On Slide #9. The company, in my opinion, has done an excellent job of detailing, prescribing physicians. More than 2,800 physicians in the United States have prescribed gammaCore therapy. But I think this audience is aware that, in spite of that success, the company has been challenged to establish reliable reimbursement through the commercial insurers. And in response to that challenge, on Slide #10, over the last 6 months, we have been focusing the company on 2 channels where we are reliably getting paid. Department of Defense sales, under the FSS contract through the veterans administration and military treatment facilities in the United States. And in the United Kingdom by leveraging the Innovation Technology Program award for cluster headache, and the ultimately getting broad coverage in the United Kingdom from NHS. On Slide #11, management uses paid months of therapy as our primary metric. We sell gammaCore therapy in either a 1-month refill or a 3-month refill. And so in order to smooth out the difference between those 2 product offerings, we look at the total paid months of therapy by quarter. For the last 4, 5 quarters, the company had been growing sequentially 25% to 30%. Unfortunately, with the pandemic that really became acute in March of 2020. We withdrew our guidance in March. And for the current quarter, we have given guidance of revenue to exceed $700,000. On Slide #12, just a little bit of detail about the total addressable market, the business opportunity represented by the federal supply schedule. The most important number on this slide is that 400,000 patients saw a healthcare professional in the VA system for headache in 2018. At this point, we are shipping roughly 300, 350 prescriptions per month into the VA system. So clearly, we have a lot of room to grow before we impact those total 400,000 patients, total addressable markets. Longer term, many of you who have been with this company for a while are aware that non-invasive vagus nerve stimulation is really a platform technology with vast potential, as depicted on Slide #13. In neurology, we are cleared for cluster headache and migraine, but we believe that ultimately, the therapy will be used for post-traumatic headache, traumatic brain injury, subarachnoid hemorrhage, stroke. And in inflammation, reactive airway disease, I'm going to talk about in a little bit more detail here shortly, and longer term, rheumatoid arthritis, Sjogren's syndrome. And there may also be gastroenterology indications in the future. Slide #14, in the last several months, and largely thanks to Dr. Peter Staats' influence, we began an initiative to explore the use of gammaCore therapy to treat reactive airway disease in COVID-19 patients. There was early work done 5, 10 years ago by the company before the company began to focus on headache in this broad category, including pilot studies in asthma, bronchoconstriction, exercise-induced bronchospasm and COPD. Our CE mark does cover many of those indications. In April, early April, we filed an emergency-use authorization with the FDA. And in mid-April, a peer-reviewed publication was published around the use of non-invasive vagus nerve stimulation to treat respiratory symptoms associated with COVID 19. At this time, on Slide #15, there are 2 investigator-initiated trials recruiting patients to evaluate the use of gammaCore therapy in COVID-19. And again, for those of you who've been with the company for a long time, on Slide #16, important part of our asset value is the broad intellectual property portfolio. That covers the details of our electronic signals that pass comfortably through the skin that enable a non-invasive modality and the use of a vagus nerve stimulator on the neck. Slide #17 is a summary of our financial performance through the first quarter of 2020. Revenues have been disappointing, and the current quarter is likely to be flat. But we remain optimistic about future revenue growth as our sales force in the United Kingdom and in the United States can return to their job functions. Our R&D spending has been declining and will continue to decline. We announced previously the termination of our PREMIUM II study, which was a large part of the R&D spend over the past year. SG&A expenses continue to decline. We have a few more cost reduction activities, which have been implemented in the current quarter, which will further reduce the SG&A expense. Therefore, our operating expenses and ultimately, our cash burn is continuing to decline. So in summary, electroCore is a healthy, early-revenue stage medical device company. We've got a proprietary non-invasive vagus nerve stimulator branded as gammaCore, which can unlock the broad potential of bioelectronic medicine. Our initial markets are cluster headache and migraine, which are large total addressable markets in the U.S. and outside the U.S. We have a recurring revenue business model and a very strong IP portfolio. Thank you for your kind attention. At this time, we're not showing -- well, at this time, I'd like to make sure that there are no current questions. We're not showing any questions logged in through the virtual shareholder meeting website. But I would like to invite shareholders if you don't have a question at this time, please feel comfortable contacting myself or the company with any questions about the company, and we'll be happy to do our best to answer whatever we can. Ira, you don't see any questions either, right?

No.

So Mike, I believe...

Yes. Dan, thank you.

I believe we can conclude the question-and-answer portion of the meeting. Right, Ira?

Yes.

Thank you, Dan. We will now conclude today's event. Thank you for joining us at the electroCore, Inc. Annual Meeting of Stockholders.