UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE QUARTERLY PERIOD ENDED
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission File Number
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of November 1, 2022 the registrant had
| 1 |
| 2 |
REFERENCES TO ELECTROCORE
In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to the “Company,” “electroCore,” “we,” “us” and “our” refer to electroCore, Inc. a Delaware corporation and its subsidiaries.
This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to them. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, (i) risks and uncertainties related to the impact of the COVID-19 pandemic on general political and economic conditions, including as a result of efforts by governmental authorities to mitigate the COVID-19 pandemic, such as travel bans, vaccine mandates, shelter in place orders and third-party business closures and resource allocations, manufacturing and supply chains and patient access to commercial products; our ability to execute our operational and budget plans in light of the COVID-19 pandemic, and (ii) those included in our Form 10-Qs, our Annual Report on Form 10-K for the year ended December 31, 2021, in our other filings with the U.S. Securities and Exchange Commission or in materials incorporated by reference therein, including the information in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in such filings. Furthermore, any such forward-looking statements in this Quarterly Report speak only as of the date of this report. Except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of such statements.
The electroCore logo, gammaCore and other trademarks of electroCore, Inc. appearing in this Quarterly Report are the property of electroCore, Inc. All other trademarks, service marks and trade names in this Quarterly Report are the property of their respective owners. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this Quarterly Report.
| 3 |
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands, except share data)
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September 30, |
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December 31, |
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2022 |
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2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Inventories, noncurrent |
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Property and equipment, net |
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Operating lease right of use assets, net |
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Other assets, net |
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Total assets |
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$ |
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$ |
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Liabilities and Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Current portion of operating lease liabilities |
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Total current liabilities |
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Noncurrent liabilities: |
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Operating lease liabilities, noncurrent |
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Total liabilities |
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Commitments and contingencies |
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Stockholders' equity: |
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Preferred Stock, par value $ |
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Common Stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive (loss) income |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands, except per share data)
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Three months ended September 30, |
Nine months ended September 30, |
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2022 |
2021 |
2022 | 2021 | |||||||||||
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Net sales |
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$ |
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$ | $ | |||||||||
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Cost of goods sold |
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Gross profit |
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Operating expenses |
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Research and development |
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Selling, general and administrative |
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Total operating expenses |
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Loss from operations |
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Other (income) expense |
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Gain on extinguishment of debt |
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Interest and other income |
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Other expense |
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Total other (income) expense |
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| Loss before income taxes | ( |
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| (Provision) benefit from income taxes (see Note 9) | ( |
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| Net loss | $ | ( |
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Net loss per share of common stock - Basic and Diluted (see Note 8) |
$ | ( |
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Weighted average common shares outstanding - Basic and Diluted (see Note 8) |
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See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands)
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Three months ended September 30, |
Nine months ended September 30, |
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2022 | 2021 | 2022 |
2021 | |||||||||||
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Net loss |
$ | ( |
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Other comprehensive (loss) income: |
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Foreign currency translation adjustment |
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Unrealized gain (loss) on securities, net of taxes as applicable |
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Other comprehensive (loss) income |
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Comprehensive loss |
$ | ( |
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See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands)
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Common |
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Additional |
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Accumulated other |
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Stock |
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paid-in |
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Accumulated |
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comprehensive |
Total | |||||||||||||
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Shares |
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Amount |
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capital |
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deficit |
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income (loss) |
equity | ||||||||||
| Balances as of January 1, 2022 | $ | $ |
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$ | ( |
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Net loss |
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Other comprehensive income |
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Issuance of stock related to employee compensation plans, net of forfeitures |
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Share based compensation |
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| Balances as of March 31, 2022 | $ | $ | $ | ( |
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Net loss |
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— |
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( |
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| Other comprehensive income | — | ( |
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Issuance of stock related to employee compensation plans, net of forfeitures |
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Share based compensation |
— |
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| Balances as of June 30, 2022 |
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$ |
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$ |
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$ |
( |
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| Net loss | — | ( |
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| Other comprehensive income |
— | ( |
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Issuance of stock related to employee compensation plans, net of forfeitures |
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| Share based compensation | — | |||||||||||||||||||||||
| Balances as of September 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 7 |
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands)
| Common |
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Additional |
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Accumulated other |
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Total electroCore, Inc. |
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Stock |
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paid-in |
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Accumulated |
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comprehensive |
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stockholders' |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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capital |
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deficit |
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income (loss) |
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equity |
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interest |
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equity |
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| Balances as of January 1, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||
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Net loss |
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Other comprehensive income |
— | ||||||||||||||||||||||||||||||
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Issuance of stock |
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Issuance of stock related to employee compensation plans, net of forfeitures |
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Settlement of accrued bonus |
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Share based compensation |
— | ||||||||||||||||||||||||||||||
| Balances as of March 31, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||
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Net loss |
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— |
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( |
) |
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( |
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( |
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Other comprehensive income |
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— |
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Issuance of stock related to employee compensation plans, net of forfeitures |
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Share based compensation |
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— |
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Balances as of June 30, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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$ |
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| Net loss | — | ( |
) | ( |
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| Other comprehensive income | — | ( |
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Issuance of stock, net of related expenses |
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Issuance of stock to satisfy legal fee obligation |
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Issuance of stock related to employee compensation plan, net of forfeitures |
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Share based compensation |
— | ||||||||||||||||||||||||||||||
| Balances as of September 30, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||
| 8 |
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
(in thousands)
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Nine months ended September 30, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation and amortization |
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Amortization of marketable securities discount |
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| Gain on extinguishment of debt | ( |
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Gain on legal fee obligation settled with stock |
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Net noncash lease expense |
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| Inventory reserve charge | ||||||||
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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( |
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Inventories |
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Prepaid expenses and other current assets |
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( |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Right of use operating leases |
( |
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Operating lease liabilities |
( |
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Other assets |
( |
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Net cash used in operating activities |
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( |
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( |
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Cash flows from investing activities: |
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Purchase of marketable securities |
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( |
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Proceeds from maturities of marketable securities |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Shares issued |
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Net cash provided by financing activities |
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Effect of changes in exchange rates on cash and cash equivalents |
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( |
) |
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Net (decrease) increase in cash and cash equivalents and restricted cash |
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( |
) |
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Cash and cash equivalents – beginning of period |
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Cash and cash equivalents and restricted cash – end of period |
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$ |
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$ |
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Supplemental cash flows disclosures: |
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| Proceeds from sale of state net operating losses | $ | $ | ||||||
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Interest paid |
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$ |
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$ |
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| Income taxes paid | $ | $ | ||||||
| Supplemental schedule of noncash activity: | ||||||||
| Insurance premium financing | $ | $ |
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| Accounts payable paid through issuance of common stock | $ |
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$ |
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| 2020 Accrued bonus awarded in equity | $ | $ |
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See accompanying notes to unaudited condensed consolidated financial statements.
| 9 |
ELECTROCORE, INC. AND SUBSIDIARIES
(unaudited)
Note 1. The Company
We are a commercial stage medical device company with a proprietary non-invasive vagus nerve stimulation, or nVNS, therapy, called gammaCore. nVNS is a platform bioelectronic medical therapy that modulates neurotransmitters and immune function through its effects on both the peripheral and central nervous systems. We are initially focused on utilizing gammaCore in the management and treatment of primary headache conditions.
electroCore is headquartered in Rockaway, New Jersey, has
Note 2. Summary of Significant Accounting Policies
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(a) |
Basis of Presentation |
The accompanying condensed consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and with instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair presentation of the Company’s condensed consolidated financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2022. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.
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(b) |
Principles of Consolidation |
The accompanying condensed consolidated financial statements include the accounts of electroCore and its wholly owned subsidiaries. electroCore Australia was consolidated with the non-controlled equity presented as non-controlling interest in the Company's Condensed Consolidated Statement of Equity for the three and nine months ended September 30, 2021. The Company terminated its affiliation with electroCore Australia on November 2, 2021 and, as such, this dormant entity was not included in the Company's Condensed Consolidated Statement of Equity for the nine months ended September 30, 2022. All intercompany balances and transactions have been eliminated in consolidation.
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(c) |
Use of Estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, trade credits, rebates, co-payment assistance and sales returns, valuation of inventory, estimated useful life of licensed devices, stock compensation, incremental borrowing rate and contingencies.
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(d) |
Cash, Cash Equivalents and Restricted Cash |
The following table provides a reconciliation of cash, cash equivalents and restricted cash to the balance reflected on the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2022:
| (in thousands) |
Nine Months Ended September 30, 2022 |
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Cash and cash equivalents |
$ |
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| Restricted cash |
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Total cash, cash equivalents and restricted cash |
$ | ||
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(e) |
Restricted Cash |
The Company's restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its new corporate credit card arrangement with Citibank.
| 10 |
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(f) |
Licensed Products |
The Company licenses a portion of its devices through its cash pay channels. The cost of these licensed devices is capitalized and included in Other Assets in the accompanying Condensed Balance Sheet at September 30, 2022, and is being recognized as cost of goods sold over the estimated useful life of the device.
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(g) |
Reclassification of Balance Sheet Item |
Certain accounts payable amounts reported at December 31, 2021 have been reclassified to conform to current period presentation. A total of approximately $
Note 3. Significant Risks and Uncertainties
Liquidity
The Company has experienced significant net losses and cash used in operations, and it expects to continue to incur net losses and cash used in operations for the near future as it works to increase market acceptance of its gammaCore therapy. The Company has never been profitable and has incurred net losses and cash used in operations in each year since its inception.
The Company’s expected cash requirements for the next 12 months and beyond are largely based on the commercial success of its products. There are significant risks and uncertainties as to its ability to achieve these operating results. The Company believes its cash and cash equivalents on hand will enable it to fund its operating expenses and capital expenditure requirements, for at least the next 12 months from the date the accompanying financial statements in this quarterly report are issued.
Concentration of Revenue Risks
The Company earns a significant amount of its revenue (i) in the United States from the Department of Veterans Affairs and Department of Defense ("VA/DoD") pursuant to its qualifying contract under the Federal Supply Schedule and open market sales to individual Department of Veterans Affairs facilities, and (ii) in the United Kingdom from the National Health Service. The VA/DoD and National Health Service were the Company’s sole customers accounting for
|
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Three months ended September 30, |
Nine months ended September 30, |
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2022 | 2021 | 2022 | 2021 | |||||||||
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Revenue channel: |
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VA/DoD |
% | % | % | % | |||||||||
|
National Health Service |
% | % | % | % |
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The Company has foreign currency exchange risk related to revenue and operating expenses in currencies other than the local currencies in which it operates. The Company is exposed to currency risk from the potential changes in functional currency values of its assets, liabilities, and cash flows denominated in foreign currencies.
COVID-19 Risks and Uncertainties
The Company continues to monitor the impact of the coronavirus pandemic on all aspects of its business and geographies, including how it will impact business partners, customers, and the global supply chain. While the Company experienced disruptions during the three and nine months ended September 30, 2022 and 2021 from the coronavirus pandemic, it is unable to predict the full impact that the coronavirus pandemic may have on its financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, the emergence of new viral strains that are not responsive to the vaccines, among others. The coronavirus pandemic has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. Depending upon the duration and severity of the pandemic, the continuing effect on the Company's results and outlook over the long term remains uncertain.
| 11 |
Note 4. Revenue
Geographical Net Sales
The following table presents net sales disaggregated by geographic market:
|
|
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
|
(in thousands) |
2022 | 2021 | 2022 | 2021 | |||||||||||
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Product revenue |
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United States |
$ | $ | $ | $ | |||||||||||
| United Kingdom | |||||||||||||||
| Other | |||||||||||||||
| License revenue | |||||||||||||||
| Japan | — | — | |||||||||||||
|
Total Net Sales |
$ | $ | $ | $ | |||||||||||
Performance Obligations
The Company’s net revenue represents total revenue, net of discounts, vouchers, rebates, returns, co-payment assistance, and certain fees for services related to its e-commerce platform. These adjustments represent variable consideration and are recorded for the Company’s estimate of cash consideration expected to be given by the Company to a customer that is presumed to be a reduction of the transaction price of the Company’s products and, therefore, are characterized as a reduction of revenue. These adjustments are established by management as its best estimate of available information and will be adjusted to reflect known changes in the factors that impact such allowances. Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product.
Revenue is recognized when delivery of the product is completed. The Company deems control to have transferred upon the completion of delivery because that is the point in which (1) it has a present right to payment for the product, (2) it has transferred the physical possession of the product, (3) the customer has legal title to the product, (4) the customer has risks and rewards of ownership and (5) the customer has accepted the product. After the products have been delivered and control has transferred, the Company has
Trade credits are discounts that are contingent upon a timely remittance of payment and are estimated based on historical experience. For the three and nine months ended September 30, 2022 and 2021, the trade credits and discounts were immaterial.
Contract Balances
The Company generally invoices the customer and recognizes revenue once its performance obligations are satisfied, at which point payment is unconditional. Accordingly, under ASC 606, the Company’s contracts with customers did not give rise to contract assets or liabilities during the three and nine months ended September 30, 2022 and 2021.
Agreed upon payment terms with customers are within generally within
License Agreement with Teijin Limited
Effective March 29, 2022, the Company entered into an agreement with Teijin Limited (Teijin), to license certain exclusive rights to its nVNS technology for commercialization in Japan for a range of primary headache disorders.
Under the agreement, the Company received a non-refundable, upfront payment for the licenses and rights granted to Teijin. The financial terms of the Teijin license agreement contain milestone payments, payable upon the decision by Teijin to commercialize the licensed product for specific indications. The Company also will receive an annual license fee commencing on the first anniversary of the agreement and payable annually until the first commercial sale on any approved indication. Upon favorable regulatory and payor coverage decisions in Japan, the parties plan to enter into an exclusive commercial supply agreement for gammaCore nVNS.
The agreement contains customary terms and conditions, including renewal and termination provisions, as well as minimum purchase commitments once a commercial supply agreement is in place. Furthermore, Teijin is responsible for all costs associated with regulatory approval by the Pharmaceuticals and Medical Devices Agency (PMDA), the Japanese FDA equivalent. As part of the agreement, Teijin will have the right of first negotiation for a license to additional indications in Japan. The Company began to recognize revenue from the non-refundable upfront payment over the 12-month period from the effective date due to the Company's continuing requirement to supply data under the agreement.
| 12 |
Note 5. Inventories
As of September 30, 2022 and December 31, 2021, inventories consisted of the following:
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(in thousands) |
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September 30, 2022 |
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December 31, 2021 |
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Raw materials |
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$ |
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$ |
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Work in process |
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Finished goods |
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Total inventories, net |
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Less: noncurrent inventories |
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Current inventories |
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$ |
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$ |
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The reserve for obsolete inventory was $
Note 6. Leases
For the three and nine months ended September 30, 2022 the Company recognized lease expense of $
Supplemental Balance Sheet Information for Operating Leases:
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(in thousands) |
September 30, 2022 |
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December 31, 2021 |
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Operating leases: |
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Operating lease right of use assets |
$ |
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$ |
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Operating lease liabilities: |
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Current portion of operating lease liabilities |
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Noncurrent operating lease liabilities |
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Total operating lease liabilities |
$ |
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$ |
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Weighted average remaining lease term (in years) |
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Weighted average discount rate |
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% |
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% |
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Future minimum lease payments under non-cancellable operating leases as of September 30, 2022:
| (in thousands) | ||||
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Remainder of 2022 |
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$ |
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2023 |
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2024 |
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2025 |
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2026 |
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| 2027 and thereafter | ||||
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Total future minimum lease payments |
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Less: Amounts representing interest |
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( |
) |
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Total |
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$ |
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| 13 |
Note 7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of September 30, 2022 and December 31, 2021 consisted of the following:
|
(in thousands) |
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September 30, 2022 |
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December 31, 2021 |
|
||
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Accrued professional fees |
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$ |
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$ |
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Accrued bonuses and incentive compensation |
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| Accrued litigation legal fees expense | ||||||||
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Other |
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$ |
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$ |
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On July 5, 2022, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (the "2022 Agreement"). The 2022 Agreement provides for a single borrowing by the Company of approximately $
On July 2, 2021, the Company entered into a Commercial Insurance Premium Finance and Security Agreement (the "2021 Agreement"). The 2021 Agreement provided for a single borrowing by the Company of $
Note 8. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding adjusted to give effect to potentially dilutive securities. Restricted stock and unit awards, stock options, and warrants have not been included in the diluted loss per share calculation as their inclusion would have had an anti-dilutive effect.
The potential common stock equivalents that have been excluded from the computation of diluted loss per share consist of the following:
|
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Nine months ended September 30, |
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(in thousands) |
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2022 |
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2021 |
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Outstanding stock options |
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| Nonvested restricted stock and unit awards |
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| Stock purchase warrants |
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| 14 |
Note 9. Income Taxes
The Company may be eligible, from time to time, to receive cash from the sale of its net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program. On April 14, 2022, the Company received a net cash amount of approximately $
Note 10. Stock Based Compensation
The following table presents a summary of activity related to stock options during the nine months ended September 30, 2022:
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Number of Options (in thousands) |
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Weighted Average Exercise Price |
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Weighted Average Remaining Contractual Term (Years) |
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|||
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Outstanding, January 1, 2022 |
$ |
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$ |
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Granted |
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Exercised |
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Cancelled |
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( |
) |
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Outstanding, September 30, 2022 |
$ |
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$ |
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Exercisable, September 30, 2022 |
$ |
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$ |
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|
The intrinsic value is calculated as the difference between the fair market value at September 30, 2022 and the exercise price per share of the stock options. As of September 30, 2022, all options outstanding had
| 15 |
The following table presents a summary of activity related to restricted and deferred stock units (“Stock Units”) granted during the nine months ended September 30, 2022:
|
|
|
Number of Shares (in thousands) |
|
|
Weighted Average Grant Date Fair Value |
|
||
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Nonvested, January 1, 2022 |
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$ |
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Granted |
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Vested |
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( |
) |
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Cancelled |
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( |
) |
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Nonvested, September 30, 2022 |
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$ |
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In general, Stock Units granted to employees vest over to -year periods.
Immediately following the Company’s annual meeting of stockholders, the Company generally grants each non-employee director an equity award that vests over a
The Company recognized stock compensation expense for its equity awards as follows:
|
|
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
|
(in thousands) |
2022 | 2021 | 2022 |
2021 |
|||||||||||
|
Selling, general and administrative |
$ | $ | $ | $ | |||||||||||
|
Research and development |
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|
Cost of goods sold |
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| Total expense | $ | $ | $ | $ | |||||||||||
Total unrecognized compensation cost related to unvested awards as of September 30, 2022 was $
Valuation Information for Stock-Based Compensation
The fair value of each stock option award during the three and nine months ended September 30, 2022 and 2021 was estimated on the date of grant using the Black-Scholes model. Expected volatility was based on historical common stock volatility of the Company's peers. The risk-free interest rate was based on the average U.S. Treasury rate that most closely resembled the expected life of the related award. The expected term of the award was calculated using the simplified method. No dividend was assumed as the Company does not pay regular dividends on its common stock and does not anticipate paying any dividends in the foreseeable future.
The weighted average assumptions used in the Black-Scholes option pricing model in valuing stock options granted in the three and nine months ended September 30, 2022 and 2021 are summarized in the table below.
| Nine months ended September 30, |
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| 2022 |
2021 | ||||||
|
Fair value at grant date |
$ |
|
|
$ | |||
|
Expected volatility |
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% |
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% | |||
|
Risk-free interest rate |
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% |
% | ||||
|
Expected holding period, in years |
|
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|||||
|
Dividend yield |
|
|
% |
% | |||
| 16 |
Note 11. Commitments and Contingencies
Stockholders Litigation
On July 8, 2019 and August 1, 2019, purported stockholders of the Company served putative class action lawsuits in the Superior Court of New Jersey for Somerset County, captioned Paul Kuehl vs. electroCore, Inc., et al., Docket No. SOM-L 000876-19 and Shirley Stone vs. electroCore, Inc., et al., Docket No. SOM-L 001007-19, respectively. In addition to the Company, the defendants include present and past directors and officers, Evercore Group L.L.C., Cantor Fitzgerald & Co., JMP Securities LLC and BTIG, LLC, the underwriters for its IPO; and two of the Company’s stockholders. On August 15, 2019, the Superior Court entered an order consolidating the Kuehl and Stone actions, which proceeded under Docket No. SOM-L 000876-19. Each plaintiff was appointed a co-lead plaintiff. The plaintiffs filed a consolidated amended complaint, which sought certification of a class of stockholders who purchased common stock in the IPO or whose purchases are traceable to that offering. The consolidated amended complaint alleged that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act with respect to the registration statement and related prospectus for the IPO. The complaint sought unspecified compensatory damages, interest, costs and attorneys’ fees.
On October 31, 2019, the Company and the other defendants filed a motion to dismiss the complaint or in the alternative to stay the action in favor of the pending federal action (discussed below). On February 21, 2020, the court granted the defendants’ motion to dismiss the consolidated amended complaint with prejudice. On March 2, 2020 the court entered an amended order dismissing the consolidated amended complaint with prejudice. On March 27, 2020, the plaintiffs filed a notice of appeal with the N.J. Superior Court – Appellate Division. The appeal was argued on September 27, 2021. On October 8, 2021, the Appellate Division issued an order reversing the decision of the Superior Court. The case has been remanded to the Superior Court for oral argument on the motion to dismiss. On November 11, 2021 the defendants filed a supplemental motion to dismiss based on the forum selection clause in our certificate of incorporation's. On December 10, 2021, the Superior Court heard argument of the original motion to dismiss and the supplemental motion to dismiss based on the federal forum selection clause. On December 14, 2021, the Superior Court granted the supplemental motion to dismiss based on the federal forum selection clause with prejudice and granted the original motion to dismiss without prejudice. On January 27, 2022, the plaintiffs filed a notice of appeal to the Appellate Division. On April 15, 2022 the plaintiffs filed their appeal brief. The brief of defendant-appellees was filed on May 16, 2022. The appeal is fully briefed. No argument date for the appeal has been set.
On September 26, 2019 and October 31, 2019, purported stockholders of the Company served putative class action lawsuits in the United States District Court for the District of New Jersey captioned Allyn Turnofsky vs. electroCore, Inc., et al., Case 3:19-cv-18400, and Priewe vs. electroCore, Inc., et al., Case 1:19-cv-19653, respectively. In addition to the Company, the defendants include present and past directors and officers, and Evercore Group L.L.C., Cantor Fitzgerald & Co., JMP Securities LLC and BTIG, LLC, the underwriters for the IPO. The plaintiffs each seek to represent a class of stockholders who (i) purchased the Company’s common stock in the IPO or whose purchases are traceable to the IPO, or (ii) who purchased common stock between the IPO and September 25, 2019. The complaints each alleged that the defendants violated Sections 11 and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act, with respect to (i) the registration statement and related prospectus for the IPO, and (ii) certain post-IPO disclosures filed with the SEC. The complaints sought unspecified compensatory damages, interest, costs and attorneys’ fees. The Priewe case was voluntarily dismissed on February 19, 2020.
In the Turnofsky case, on November 25, 2019 several plaintiffs and their counsel moved to be selected as lead plaintiff and lead plaintiff’s counsel. On April 24, 2020, the Court granted the motion of Carole Tibbs and the firm Bragar, Eagel & Squire, P.C. On July 17, 2020 the plaintiffs filed an amended complaint in Turnofsky. In addition to the prior claims, the amended complaint added an additional director defendant and
| 17 |
On March 4, 2021, purported stockholder Richard Maltz brought a purported stockholder derivative action in the United States District Court for the District of New Jersey. The action is captioned Richard Maltz, derivatively on behalf of electroCore, Inc., vs. Francis R. Amato, et al., Case 3:21-cv-04135. The defendants include present and past directors and officers of the Company. The plaintiff purports to pursue derivative claims on behalf of the Company in connection with the IPO and actions occurring between the IPO and September 25, 2019. The complaint alleges that demand on the board of directors is excused. The complaint purports to allege claims against the defendants for violating Section 14(a) of the Exchange Act, breaching fiduciary duties, unjust enrichment and waste of corporate assets. The complaint also purports to allege claims for contribution in connection with the Turnofsky case described above, pursuant to Section 11(f) of the Securities Act and Sections 10(b) and 21D of the Exchange Act. The complaint seeks unspecified compensatory damages, interest, costs and attorneys’ fees; declaratory relief; and an order requiring changes to corporate governance and internal procedures and a vote on proposed amendments to the Bylaws and Certificate of Incorporation.
On March 8, 2021, purported stockholder Erin Yuson brought a purported stockholder derivative action in the United States District Court for the District of New Jersey. The action is captioned Erwin Yuson, derivatively on behalf of electroCore, Inc., vs. Francis R. Amato, et al., Case 3:21-cv-04481. The defendants include present and past directors and officers of the Company. The plaintiff purports to pursue derivative claims on behalf of the Company in connection with a 2019 proxy statement and actions occurring from the IPO through September 25, 2019. The complaint alleges that demand on the board of directors is excused. The complaint purports to allege claims against the defendants for violating Section 14(a) of the Exchange Act and breaching fiduciary duties. The complaint seeks unspecified compensatory damages, interest, costs and attorneys’ fees; declaratory relief; and an order requiring changes to corporate governance and internal procedures and a vote on proposed amendments to the Bylaws and Certificate of Incorporation.
The plaintiffs in the Maltz and Yuson derivative actions agreed to consolidate and stay those actions. The actions are stayed until and through the resolution of any motion for summary judgment in the Turnofsky federal securities class action. A stipulation to that effect was filed by the plaintiffs on April 14, 2021 and ordered by the court on April 30, 2021. These cases also have been re-assigned to Judge Quraishi.
The Company intends to continue to vigorously defend itself in these matters. However, in light of, among other things, the preliminary stage of these litigation matters, the Company is unable to determine the reasonable probability of loss or a range of potential loss. Accordingly, the Company has not established an accrual for potential losses, if any, that could result from any unfavorable outcome, and there can be no assurance that these litigation matters will not result in substantial defense costs and/or judgments or settlements that could adversely affect the Company’s financial condition.
The Company is subject to various claims, complaints and legal actions in the normal course of business from time to time. The Company is not aware of any further currently pending litigation for which it believes the outcome could have a material adverse effect on its operations or financial position. The Company expenses associated legal fees including those relating to the stockholder litigation described in this Note 11 in the period they are incurred.
| 18 |
You should read this section in conjunction with our unaudited interim condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC. As discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those under the caption "Risk Factors" in the aforementioned Annual Report and this Form 10-Q.
Overview
We are a commercial-stage medical device company with a proprietary non-invasive vagus nerve stimulation, or nVNS, therapy, called gammaCore. nVNS is a platform bioelectronic medical therapy that modulates neurotransmitters and immune function through its effects on both the peripheral and central nervous systems. We are focused on utilizing gammaCore in the management and treatment of primary headache conditions.
Our gammaCore nVNS therapy is the first non-invasive, hand-held medical therapy applied at the neck as a therapy to treat migraine and cluster headache through the utilization of a mild electrical stimulation to the vagus nerve that passes through the skin. Designed as a portable, easy-to-use technology, gammaCore is self-administered by patients, prophylactically or as needed, without the potential side effects associated with commonly prescribed drugs. When placed on a patient ’s neck over the vagus nerve, gammaCore stimulates the afferent fiber, which may lead to a reduction of pain in patients. gammaCore (nVNS) is FDA cleared in the United States for adjunctive use for the preventive treatment of cluster headache in adult patients, the acute treatment of pain associated with episodic cluster headache in adult patients, the acute and preventive treatment of migraine in adults and adolescent (ages 12 and older) patients, and paroxysmal hemicrania and hemicrania continua in adult patients. gammaCore is CE-marked in the United Kingdom and European Union for the acute and/or prophylactic treatment of primary headache (Migraine, Cluster Headache, Trigeminal Autonomic Cephalalgias and Hemicrania Continua) and Medication Overuse Headache in adults.
Since May 2019, we have primarily focused our sales efforts in two channels, the U.S. Department of Veterans Affairs and U.S. Department of Defense, and the United Kingdom. More recently, we began making targeted investments to increase the adoption of our gammaCore therapy in both the United States and abroad. We continue to evaluate strategies to expand commercial adoption of gammaCore, including traditional reimbursement models as well as the potential use of e-commerce and cash pay models through direct-to-physician and direct-to-consumer approaches. We expect to make continued targeted investments in the evaluation and possible execution of these strategies in future quarters. We are also continuing to make targeted investments in future iterations of our therapy delivery platform. We are unable to predict the impact these strategies and investments will have on our financial condition, results of operations and cash flows due to numerous uncertainties, including the potential impact of inflation, currency exchange rates, and general overall economic conditions.
In April 2022, we announced that nVNS was selected for further study under the United States Department of Defense Biotech Optimized for Operational and Tactics (BOOST) research program conducted under the leadership of the 711 Human Performance Wing Performance Optimization Branch of the United States Air Force to provide accelerated training, sustained attention, reduced fatigue, and improved mood. The continued efforts of the BOOST Program may result in adoption by the United States Air Force of a device not intended for primary headache, which may result in the requirement by the Company to provide field devices to the United States Air Force in the future. We are unable to predict the impact the BOOST Program will have on our financial condition, results of operations and cash flows due to numerous uncertainties.
In addition, we have announced agreements with new distributors to make gammaCore Sapphire available in several countries beyond the U.S. and United Kingdom, as well as a licensing agreement enabling market access activities to begin in Japan.
Capital Activities
On January 18, 2022, we filed a Form S-3 registration statement, or the 2022 Shelf Registration Statement, with the SEC, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, up to an aggregate amount of $75 million. The 2022 Shelf Registration Statement was declared effective on January 25, 2022. The proposed maximum offering price per unit and the proposed maximum aggregate offering price per class of security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement. Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75 million, the aggregate maximum offering price of all securities issued by the us in any given 12-calendar month period pursuant to this and any of our other registration statements may not exceed one-third of the aggregate market value of our securities held by non-affiliates.
| 19 |
License Agreement with Teijin Limited
On March 29, 2022, we entered into an agreement with Teijin Limited (Teijin), to license certain exclusive rights to its nVNS technology for commercialization in Japan for a range of primary headache disorders.
Under the agreement, we received a one-time non-refundable, upfront payment for the license and rights granted to Teijin, which we received in the third quarter of 2022. The Company began to recognize revenue for this upfront payment ratably over a period of one year commencing in the second quarter of 2022. The financial terms contain milestone payments, payable upon the decision by Teijin to commercialize the licensed product for specific indications. We will also receive an annual license fee commencing on the first anniversary of the agreement and payable annually until the first commercial sale on any approved indication. Upon favorable regulatory and payor coverage decisions in Japan, the parties plan to enter into an exclusive commercial supply agreement for gammaCore nVNS.
The agreement contains customary terms and conditions, including renewal and termination provisions, as well as minimum purchase commitments once a commercial supply agreement is in place. Furthermore, Teijin is responsible for all costs associated with regulatory approval by the Pharmaceuticals and Medical Devices Agency (PMDA), the Japanese FDA equivalent. As part of the agreement, Teijin will have the right of first negotiation for a license to additional indications in Japan.
Sale of New Jersey Net Operating Losses
We may be eligible, from time to time, to receive cash from the sale of our net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program. On April 14, 2022, we received a net cash amount of approximately $445,000 from the sale of our New Jersey state net operating losses.
Impact of COVID-19
We continue to monitor the impact of the coronavirus pandemic on all aspects of our business and geographies, including how it will impact business partners, customers and the global supply chain. While we experienced disruptions during the three and nine months ended September 30, 2022 and 2021 from the coronavirus pandemic, we are unable to predict the full impact that the coronavirus pandemic may have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, the emergence of new viral strains that are not responsive to the vaccines, among others. The coronavirus pandemic has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. Depending upon the duration and severity of the pandemic, the continuing effect on our results and outlook over the long term remains uncertain.
Critical Accounting Policies and Estimates
The significant accounting policies and basis of presentation of our condensed consolidated financial statements are described in Note 2 “Summary of Significant Accounting Policies” of the consolidated financial statements included with the annual report on Form 10-K.included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC on March 10, 2022 ("2021 Annual Report"), and in Note 2 "Summary of Significant Accounting Policies" of the condensed consolidated financial statements included within this quarterly report on Form 10-Q.
The preparation of our financial statements is in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and other related disclosures. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations.
The critical accounting policies that we believe, the judgements, estimates, and assumptions associated with such policies, have the greatest potential impact on the condensed consolidated financial statements are disclosed in the section titled Critical Accounting Policies and Estimates in Part II of our 2021 Annual Report.
| 20 |
Results of Operations
Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021
The following table sets forth amounts from our condensed consolidated statements of operations for the three months ended September 30, 2022 and 2021:
|
|
|
For the three months ended September 30, |
|
|
|
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Consolidated statements of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,976 |
|
|
$ |
1,487 |
|
|
$ |
489 |
|
|
Cost of goods sold |
|
|
258 |
|
|
|
355 |
|
|
|
(97 |
) |
|
Gross profit |
|
|
1,718 |
|
|
|
1,132 |
|
|
|
586 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
1,617 |
|
|
|
470 |
|
|
|
1,147 |
|
|
Selling, general and administrative |
|
|
5,657 |
|
|
|
4,647 |
|
|
|
1,010 |
|
|
Total operating expenses |
|
|
7,274 |
|
|
5,117 |
|
|
|
2,157 |
||
|
Loss from operations |
|
|
(5,556 |
) |
|
|
(3,985 |
) |
|
|
(1,571 |
) |
|
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
(103 |
) |
|
|
(4 |
) |
|
|
(99 |
) |
|
Other expense |
|
|
— |
|
|
4 |
|
|
|
(4 |
) | |
|
Total other (income) expense |
|
|
(103 |
) |
|
|
— |
|
|
(103 |
) | |
| Loss before income taxes | (5,453 | ) | (3,985 | ) | (1,468 | ) | ||||||
| Provision for income taxes | — | (8 | ) | 8 | ||||||||
|
Net loss |
|
$ |
(5,453 |
) |
|
$ |
(3,993 |
) |
|
$ |
(1,460 |
) |
Net Sales
Net sales increased 33% for the three months ended September 30, 2022 compared to the comparable prior year period. This increase of $489,000 is due to an increase in net sales across all major channels including the U.S. Department of Veteran Affairs, U.S. commercial channel, and sales from outside the U.S. which includes licensing revenue of $45,000 in the three months ended September 30, 2022. There was no licensing revenue in the comparable prior year. Revenue from outside the U.S. was adversely impacted due to the strengthening of the U.S. dollar during the three months ended September 30, 2022. We expect that the majority of our remaining 2022 fiscal year revenue will continue to come from the U.S. Department of Veterans Affairs and United Kingdom. Additionally, we expect revenues to expand from our cash pay propositions which include direct to physician models for traditional neurology headache specialists, as well as the wide range of medical providers who manage patients' headache conditions including primary care physicians, women's health, pain management, sports medicine, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).
Gross Profit
Gross profit increased by $586,000 for the three months ended September 30, 2022 compared to the comparable prior year period. Gross margin was 87% and 76% for the three months ended September 30, 2022 and 2021, respectively. Our evolving commercial strategy has resulted in the launch of cash payment models under which we license a portion of our devices. The cost of the licensed device is being recognized as cost of goods sold over the estimated useful life of the device. The incremental favorable impact on gross margin associated with licensing a portion of our devices was 9% in the three months ended September 30, 2022. Moreover, in recent quarters, we have sold an increasing amount of longer duration therapy, resulting in a higher average selling price, as well as selling an increased number of refill kits with a lower cost of goods. These factors, including Teijin license revenue with no associated cost of goods, and favorable absorption of labor and overhead costs associated with the increased number of units sold contributed to the increase in gross margin. Gross profit and gross margin for the remainder of 2022 will be largely dependent on revenue levels, product mix, any changes in the estimated useful lives of licensed devices.
Research and Development
Research and development expense for the three months ended September 30, 2022 of $1.6 million increased by $1.1 million compared to the prior year period. This increase was primarily due to targeted investments to support the future iterations of our therapy delivery platform, including the use of our intellectual property around the delivery of smart phone-integrated and smart phone-connected non-invasive therapies.
| 21 |
Selling, General and Administrative
Selling, general and administrative expense of $5.7 million for the three months ended September 30, 2022 increased by $1.0 million, or 22%, compared to the comparable prior year period as we continued to make targeted investments to support our commercial efforts, particularly around sales and marketing efforts for our cash pay propositions which include direct to physician models for traditional neurology headache specialists, as well as the wide range of medical providers who manage patients' headache conditions including primary care physicians, women's health, pain management, sports medicine, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).
Other (Income) Expense
The increase in Other (Income) Expense is primarily due to an increase in interest earned on cash and cash equivalents during the current period as funds were concentrated in interest earning instruments during the three months ended September 30, 2022. Also contributing to the increase in interest income was rising interest rates.
Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021
The following table sets forth amounts from our condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021:
|
|
|
For the nine months ended September 30, |
|
|
|
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Consolidated statements of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
6,032 |
|
|
$ |
3,960 |
|
|
$ |
2,072 |
|
|
Cost of goods sold |
|
|
976 |
|
|
|
1,093 |
|
|
|
(117 |
) |
|
Gross profit |
|
|
5,056 |
|
|
|
2,867 |
|
|
|
2,189 |
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
3,892 |
|
|
|
1,794 |
|
|
|
2,098 |
|
|
Selling, general and administrative |
|
|
18,121 |
|
|
|
15,644 |
|
|
|
2,477 |
|
|
Total operating expenses |
|
|
22,013 |
|
|
17,438 |
|
|
|
4,575 |
||
|
Loss from operations |
|
|
(16,957 |
) |
|
|
(14,571 |
) |
|
|
(2,386 |
) |
|
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
| Gain on extinguishment of debt | — | (1,422 | ) | 1,422 | ||||||||
|
Interest and other income |
|
|
(145 |
) |
|
|
(8 |
) |
|
|
(137 |
) |
|
Other expense |
|
|
5 |
|
|
7 |
|
|
|
(2 |
) | |
|
Total other (income) expense |
|
|
(140 |
) |
|
|
(1,423 |
) |
|
|
1,283 |
|
| Loss before income taxes | (16,817 | ) | (13,148 | ) | (3,669 | ) | ||||||
| Benefit for income taxes | 445 | 877 | (432 | ) | ||||||||
|
Net loss |
|
$ |
(16,372 |
) |
|
$ |
(12,271 |
) |
|
$ |
(4,101 |
) |
Net Sales
Net sales increased 52% for the nine months ended September 30, 2022 compared to the prior year period. The increase of $2.1 million is due net sales from all major channels including the U.S. Department of Veteran Affairs, U.S. commercial channel, and net sales from outside the U.S. which include $93,000 of licensing revenue recognized in the nine months ended September 30, 2022.
| 22 |
Gross Profit
Gross profit increased by $2.2 million for the nine months ended September 30, 2022 compared to the prior year. Gross margin increased 84% for the nine months ended September 30, 2022 compared to 72% for the nine months ended September 30, 2021. Our evolving commercial strategy has resulted in the launch of cash payment models under which we license a portion of our devices. The cost of the licensed device is being recognized as cost of goods sold over the estimated useful life of the device. The incremental favorable impact on gross margin associated with licensing a portion of our devices was 8% in the nine months ended September 30, 2022. Moreover, in recent quarters, we have sold an increasing amount of longer duration therapy, resulting in a higher average selling price, as well as selling an increased number of refill kits with a lower cost of goods. These factors, including Teijin license revenue with no associated cost of goods and favorable absorption of labor and overhead costs associated with the increased number of units sold contributed to the increase in gross margin.
Research and Development
Research and development expense for the nine months ended September 30, 2022 of $3.9 million increased by $2.1 million compared to the prior year period. This increase was primarily due to targeted investments to support the future iterations of our therapy delivery platform, including the use of our intellectual property around the delivery of smartphone-integrated and smartphone-connected non-invasive therapies.
Selling, General and Administrative
Selling, general and administrative expense was $18.1 million and $15.6 million for the nine months ended September 30, 2022 and 2021, respectively, as we continued to make targeted investments to support our commercial efforts, particularly around sales and marketing efforts for our cash pay propositions which include direct to physician models for traditional neurology headache specialists, as well as the wide range of medical providers who manage patients' headache conditions including primary care physicians, women's health, pain management, sports medicine, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).
Other (Income) Expense
Other (income) expense for the nine months ended September 30, 2021 primarily represents the gain of $1.4 million recorded by the Company in association with the forgiveness of its Paycheck Protection Program ("PPP") loan. The increase in Interest and other income is primarily due to an increase in interest earned on cash and cash equivalents due to the increase in rising interest rates.
Benefit for Income Taxes
The Benefit for income taxes of $0.4 million and $0.9 million for the nine months ended September 30, 2022 and 2021, respectively, represent the sale of our 2019 and 2018 state net operating losses and research and development tax credits under the State of New Jersey's NOL Transfer Program.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods noted below:
|
|
|
For the nine months ended September 30, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Net cash (used in) provided by |
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(12,631 |
) |
|
$ |
(9,273 |
) |
|
Investing activities |
|
$ |
— |
|
$ |
17,217 |
||
|
Financing activities |
|
$ |
— |
|
|
$ |
25,685 |
|
Operating Activities
Net cash used in operating activities was million and $12.6 million and $9.3 million for the nine months ended September 30, 2022 and 2021, respectively. This increase is primarily due to the increase in our net loss from operations.
| 23 |
Investing Activities
No cash was provided by investing activities during the nine months ended September 30, 2022. For the nine months ended September 30, 2021, net cash provided by investing activities was $17.2 million reflecting funds received from the maturity of marketable securities partially offset by our purchases of marketable securities during the prior period.
Financing Activities
No cash was provided by financing activities during the nine months ended September 30, 2022. For the nine months ended September 30, 2021, net cash provided by financing activities was $25.7 million representing proceeds from the sale of our common stock.
Liquidity Outlook
As of September 30, 2022, our cash and cash equivalents and restricted cash totaled $21.9 million.
We have experienced recurring losses since our inception. We incurred net losses of $16.4 million and $12.3 million for the nine months ended September 30, 2022 and 2021, respectively. We expect to continue to incur substantial negative cash flows from operations for at least the next several years as we work to increase market acceptance of our gammaCore therapy for the acute treatment of primary headache and its other indications.
Our expected cash requirements for the next 12 months and beyond are largely based on the commercial success of our products and the level of targeted investment in our commercial strategies. There are significant risks and uncertainties as to our ability to achieve these operating results, including as a result of the adverse impact on our headache business from the COVID-19 pandemic and macroeconomic factors such as inflation and the strengthening of the U.S. dollar. We believe our current cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements, as currently planned, for at least the next 12 months from the date the financial statements included in this Form 10-Q are made available.
Beyond the next 12 months, we believe that our growth will depend, in part, on our ability to fund our commercial efforts for our gammaCore therapy; and to opportunistically pursue research and development activities for additional indications, and the next generation of our gammaCore therapy. Our existing resources are unlikely to allow us to conduct all the activities that we believe could be beneficial for our future growth. As a result, we will need to seek additional funds in the future or curtail or forgo some or all such activities. If we seek to and are unable to raise funds on favorable terms, or at all, we may not be able to support our commercialization efforts or research and development activities and the growth of our business may be negatively impacted. As a result, we may be unable to compete effectively. Changes, including those relating to the payer and competitive landscape, our commercialization strategy, our development activities and regulatory matters, may occur beyond our control that would cause us to consume our available capital more quickly.
In connection with the transfer of our common stock from the Nasdaq Global Select Market to the Nasdaq Capital Market effective June 23, 2022, we have been granted a 180-day grace period, or until December 19, 2022, to regain compliance with the Nasdaq requirement that the bid price per share of our common stock on the Nasdaq Capital Market be at least $1.00 for at least 10 consecutive business days on or prior to December 19, 2022. If we fail to regain compliance during the additional compliance period, the common stock could be delisted from the Nasdaq Capital Market. Such a delisting could have a negative effect on the price of our common stock, impair the ability of investors to sell or purchase our common stock when they wish to do so, and materially adversely affect our ability to raise capital or pursue strategic, financing or other transactions on acceptable terms, or at all. See also Part II – Item 1A “Risk Factors” of our Quarterly Report on Form 10-Q for the period ending June 30, 2022 filed with the SEC on August 4, 2022.
On January 18, 2022, we filed a Form S-3 registration statement, or the 2022 Shelf Registration Statement, with the SEC, for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, which we refer to collectively as the Shelf Securities, up to an aggregate amount of $75 million. The 2022 Shelf Registration Statement was declared effective on January 25, 2022. The proposed maximum offering price per unit and the proposed maximum aggregate offering price per class of security will be determined from time to time by us in connection with the issuance by us of the securities registered under the 2022 Shelf Registration Statement. Until such time as the aggregate market value of our securities held by non-affiliates equals or exceeds $75 million, the aggregate maximum offering price of all securities issued by the us in any given 12-calendar month period pursuant to this and any of our other registration statements may not exceed one-third of the aggregate market value of our securities held by non-affiliates.
| 24 |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decision making regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rule 13a-15(b) of the Exchange Act, an evaluation as of September 30, 2022 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2022 were effective for the purposes stated above.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during the three months ended September 30, 2022 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
| 25 |
The information set forth in Note 11. Commitments and Contingencies – Stockholders Litigation of the condensed consolidated financial statements included with our quarterly report on Form 10-Q is incorporated here by reference to this Part II Item 1.
The risks described in "Risk Factors" within the 2021 Annual Report and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022, respectively could materially and adversely affect our business, financial condition, and results of operations, and the trading price of our common stock could decline. The Risk Factors section in the 2021 Annual Report, as updated by the foregoing Quarterly Reports on Form 10-Q, remain current in all material respects. These risk factors do not identify all risks that we face-our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. Refer also to the other information set forth in this Form 10-Q, including in the Forward-Looking Statements, MD&A, and Condensed Consolidated Financial Statements sections.
(b) Not applicable.
| 26 |
|
Exhibit Number |
|
Description |
|
31.1* |
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
32.1** |
|
|
|
|
|
|
|
32.2** |
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
|
* |
Filed herewith. |
|
** |
Furnished herewith. |
| † | Indicates management agreement or compensation plan. |
| 27 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Company Name |
|
|
|
|
|
|
|
Date: November 3, 2022 |
|
By: |
/s/ DANIEL S. GOLDBERGER |
|
|
|
|
Daniel S. Goldberger |
|
|
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
Date: November 3, 2022 |
|
By: |
/s/ BRIAN M. POSNER |
|
|
|
|
Brian M. Posner |
|
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
| 28 |
EXHIBIT 31.1
CERTIFICATION
I, Daniel S. Goldberger, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of electroCore, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: November 3, 2022 |
/s/ Daniel S. Goldberger |
|
|
Daniel S. Goldberger |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Brian M. Posner, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of electroCore, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
|
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: November 3, 2022 |
/s/ BRIAN M. POSNER |
|
|
Brian M. Posner |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of electroCore, Inc, (the “Company”) for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Daniel S. Goldberger, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to the best of my knowledge:
1. The Report complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: November 3, 2022 |
/s/ Daniel S. Goldberger |
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Daniel S. Goldberger |
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Chief Executive Officer |
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(Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of electroCore, Inc. (the “Company”) for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Brian M. Posner, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: November 3, 2022 |
/s/ BRIAN M. POSNER |
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Brian M. Posner |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |