What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-10 compared with 2021-03-11 · 162 added, 162 removed, 124 unchanged (72% of the section changed)

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“Risk Factors” and under “Forward-Looking Statements” in this Annual Report.

We are a commercial-stage medical device company with a proprietary non-invasive vagus nerve stimulation, or nVNS, therapy.

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 neurology, and our therapy, gammaCore, is cleared by the FDA for use by adults for the following four neurology indications:

the acute treatment of pain associated with each of migraine and eCH, the preventive treatment of migraine headache and adjunctive use for the preventive treatment of cluster headaches, or CH.

Recently, the FDA cleared the use of gammaCore for acute and preventive treatment of migraine in adolescents.

We are also considering the potential for several additional indications for our nVNS technology, which is being studied through a number of investigator-initiated studies.

These indications include COVID-19 respiratory symptoms, stroke, mild traumatic brain injury, post-traumatic stress disorder, opioid use disorders and ileus.

Following our initial FDA clearance in early 2017, our commercial strategy was to establish gammaCore as a first-line treatment option for the acute treatment of episodic CH in adult patients, who have few alternative treatment options available to them.

This strategy was supported by a product registry conducted from July 2017 through June 2018 to build advocacy among key opinion leaders in leading headache centers in the United States, and to generate patient demand in the form of prescriptions submitted to payers.

With an earlier-than-anticipated FDA clearance for our acute treatment of migraine indication, we leveraged this advocacy during the registry period as we expanded into migraine and prepared for a full commercial launch of gammaCore and gammaCore Sapphire for the acute treatment of pain associated with eCH and migraine in adult patients, which was accomplished in the third quarter of 2018.

With the clearance of adjunctive use for the prevention of CH in December 2018, we continued to build upon our existing base of advocacy and patient support.

In March 2020, the FDA cleared gammaCore for the preventive treatment of migraine headache in adult patients.

In February 2021, gammaCore was cleared by the FDA for the acute and preventive treatment of migraine in adolescents between 12 and 17 years of age.

Recently, we have focused our sales efforts in two channels, the U.S.

We are initially 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 an adjunctive 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 can be 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 nerve’s afferent fibers, 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.

We continue to evaluate strategies to expand commercial adoption of gammaCore, including the potential use of telemedicine and cash pay, direct to consumer approaches.

We incurred net losses of $23.5 million and $45.1 million for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, our accumulated deficit was $107.0 million.

We expect to continue to incur substantial net losses and negative cash flows from operations for at least the next several years as we commercialize gammaCore.

Our prior losses, combined with expected future losses, have had and will continue to have, for the foreseeable future, an adverse effect on our stockholders’ deficit and working capital.

We face a variety of challenges and risks that we will need to address and manage as we pursue our strategy, including our ability to develop and retain an effective sales force, achieve market acceptance of gammaCore among physicians, patients, and third-party payers, and expand the use of gammaCore to additional therapeutic indications.

Because of the numerous risks and uncertainties associated with our commercialization efforts, as well as research and clinical development activities, we are unable to predict the timing or amount of increased expenses, or when, if ever, we will be able to achieve or maintain profitability.

Even if we are able to increase sales of gammaCore, we may not become profitable.

If we fail to become profitable or are unable to sustain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Our expected cash requirements for the next 12 months and beyond are based on the commercialization success of our products and our ability to control operating expenses.

There are significant risks and uncertainties as to our ability to achieve these operating results, including as a result of the potential adverse impact on our business from the ongoing COVID-19 pandemic, Due to these risks and uncertainties, we may need to reduce our activities significantly more than our current operating plan and cash flow projections assume in order to fund operations for the next 12 months.

There can be no assurance that we will have sufficient cash flow and liquidity to fund our planned activities, which could force us to significantly reduce or curtail our activities and, ultimately, potentially cease operations.

These conditions raise substantial doubt about our ability to continue as a going concern .

See “-Liquidity and Capital Resources.”

Funding Activities

During the year ended December 31, 2020, we received aggregate proceeds of approximately $15.5 million through the sales of our common stock to Lincoln Park Capital Fund, LLC, or Lincoln Park.

During the year ended December 31, 2020, we received aggregate procee ds of $ 2.2 million through sale of our common stock in private placement transactions to certain affiliates and existing shareholders of the Company, including certain members of our board of directors.

In May 2020, we received approximately $1.4 million pursuant to a loan under the Paycheck Protection Program.

On May 6, 2020, we received a net cash amount of approximately $1.2 million from the sale of our New Jersey state net operating losses and research and development tax credits for the year ended December 31, 2018.

On May 14, 2020, we entered into a Securities Purchase Agreement with our legal counsel pursuant to which we issued 1,564,345 shares of common stock.

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 unable to predict the impact these strategies 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.

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.

On July 2, 2021, we completed a public offering of 20,700,000 shares of our common stock at a purchase price of $1.00 per share.

The net proceeds of the offering to us were approximately $18.8 million, after deducting the underwriting discounts and commissions and other estimated offering expenses.

We intend to use the net proceeds of the offering for sales and marketing, working capital, and general corporate purposes.

In addition, we believe that opportunities may exist from time to time to expand our current business through acquisitions or in-licenses of, or investments in, complementary companies, medicines, intellectual property, or technologies.

While we have no current agreements or commitments for any specific acquisitions, in-licenses or investments at this time, we may use a portion of the net proceeds for these purposes.

On August 30, 2021, we entered into a Securities Purchase Agreement with our legal counsel pursuant to which we issued 952,380 shares of common stock, at a purchase price of $1.05 per share.

Upon issuance of the shares, certain of our outstanding financial obligations to our legal counsel were deemed paid and satisfied in full.

On July 1, 2020, we entered into a Commercial Insurance Premium Finance and Security Agreement, or the Financing Agreement.

The Financing Agreement provides for a single borrowing by us of $1.2 million, with a seven-month term, and an annual interest rate of 2.18%.

The proceeds from this transaction were used to partially fund the premiums due under some of the Company’s insurance policies.

The amounts payable are secured by the Company’s rights under such policies.

As of December 31, 2020, the remaining balance is $164,832.

On October 4, 2021, we issued 200,000 shares of our common stock in connection with the lease termination related to our former headquarters located in Basking Ridge, NJ.

On March 27, 2020, we and Lincoln Park Capital Fund, LLC ("Lincoln Park") entered into an equity facility purchase agreement ("Purchase Agreement") pursuant to which we had the right to sell to Lincoln Park shares of our common stock, subject to certain limitations and conditions set forth in the Purchase Agreement.

In January 2021, we sold 2,750,000 shares of our common stock under the Purchase Agreement, resulting in aggregate proceeds of approximately $6.9 million.

On March 11, 2021, we terminated the Purchase Agreement and, accordingly, we will not sell any further shares of our common stock to Lincoln Park under the Purchase Agreement.

Research and Development

In April 2020, we terminated early our PREMIUM II clinical trial that was being conducted to further support our label expansion into migraine prevention.

In December 2020, we announced positive top-line results from this study.

Regulatory Clearances

In February 2021, gammaCore received clearance by the FDA for the acute and preventive treatment of migraine in adolescents between 12 and 17 years of age.

In the second quarter of 2020, two IITs of gammaCore Sapphire CV were launched to study hospitalized patients with a confirmed diagnosis of, or presumed to be, COVID-19, one in Valencia, Spain (referred to as SAVIOR-1) and the other in Pittsburgh, Pennsylvania (referred to as SAVIOR-2).

These trials are continuing to enroll patients.

Enrollment is SAVIOR-1 is complete and enrollment is ongoing in SAVIOR-2.

In September 2021, we announced the company received Section 510(k) clearance from the United States Food and Drug Administration (FDA) of the company’s submission to expand the label of gammaCore nVNS to include the treatment of Paroxysmal Hemicrania (PH) and Hemicrania Continua (HC) in adults.

Outside the US

In the United Kingdom, NHS England has provided a reimbursement pathway since April 2019 by awarding gammaCore a place on the ITPP, for use in patients with refractory cluster headache.

In October 2020, we announced that the ITPP was extended through March 2021.

Effective April 1, 2021 gammaCore Sapphire will be included in a new long-term reimbursement policy titled the MedTech Funding Mandate Policy 2021/22, or MTFM, which supports commissioners and providers in the use of selected NICE-approved, clinically effective and cost-saving medical devices, diagnostics and digital technologies that will improve patient outcomes.

In December 2019, NICE published a Medical Technology Guidance document recommending the use of gammaCore for CH within the NHS.

In January 2021, NHS Scotland adopted the NICE recommendation and recommended gammaCore for use in treatment of CH in NHS Scotland.

We recently entered into distribution agreements in Eastern Europe, Canada, and Australia.

In August 2011, we received a CE Certificate of Conformity for gammaCore for the treatment of primary headache from the British Standards Institution, a European Union notified body.

This CE Certificate of Conformity allowed us to affix the CE Mark on gammaCore and to commercialize it in the European Economic Area and other countries that recognize the European CE Mark.

In addition to the CE Certificate of Conformity for primary headache, between September 2011 and October 2013 we received CE Certificates of Conformity on gammaCore covering four other indications for use, including reactive airway disease and gastric motility disorders.

In 2019, the National Institute for Health and Care Excellence, or NICE published a Medical Technology Guidance document recommending the use of gammaCore for Cluster Headache or CH within the National Health Service, or NHS, of England and Wales.

On January 2021, NHS Scotland adopted the NICE recommendation and recommended gammaCore for use in the treatment of CH in Scotland.

NHS England awarded gammaCore a place on the Innovation Technology Payment, or ITP, program for treatment of patients with reflectory cluster headache, a reimbursement pathway that opened in April 2019.

In October 2020, we announced that the ITP program was extended through March 2021.

Effective April 1, 2021, gammaCore Sapphire was included in a new long-term, reimbursement policy, titled the MedTech Funding Mandate Policy 2021/22, or MTFM.

In August 2021, we announced the release of an article entitled “gammaCore for Cluster Headaches:

A NICE Medical Technologies Guidance” in the journal PharmacoEconomics highlighting the cost impact of gammaCore’s non-invasive vagus nerve stimulation therapy platform for patients with cluster headaches.

The paper is part of a series that provides insight into the development of NICE medical technologies guidance for new or innovative medical devices or diagnostics.

The aim of the guidance is to support the adoption of clinically effective and cost-saving technologies in the UK National Health Service.

The paper validated that gammaCore both reduces the frequency and severity of cluster headaches when used with standard of care and provides a £450 per patient savings in the first year of therapy versus standard of care alone.

In October 2021, we announced the publication of a peer-reviewed paper entitled “Non-invasive vagus nerve stimulation for treatment of cluster headache:

a retrospective review of prescribing in England,” in the British Journal of Healthcare Management.

The paper reviews the prescribing trends of gammaCore in England from April 2019 through the end of 2020 and is one of the largest clinical audits of patients with cluster headache.

The paper highlights that of the 655 patients who started on gammaCore, 46.3% of patients were prescribed at least one refill and 30.9% were prescribed two or more refills.

These real-world results suggest a durable benefit for patients utilizing gammaCore’s non-invasive vagus nerve stimulation (nVNS) for cluster headache in England.

In April 2021, we announced that Health Canada has granted regulatory approval for the promotion and sale of the gammaCore Sapphire family of products in Canada for prevention and therapeutic treatment of migraine and cluster headache, as outlined in the registration application with Health Canada.

Later in the year, the company received an amended Medical Device License from Health Canada to expand the label of gammaCore nVNS to include the acute and preventive treatment of migraine in adolescents between 12 and 17 years of age.

gammaCore is now cleared for most forms of primary headache including the acute and preventive treatment of migraine in adolescents and adults, as well as the acute and preventive treatment of cluster headache in adults.

In December 2021, we announced the launch of an e-commerce shop for patients residing in the United Kingdom.

The site, which can be found at www.gammacore.co.uk, requires patients to complete a healthcare questionnaire in order to purchase a gammaCore Sapphire™, non-invasive vagus nerve stimulator (nVNS) device online.

The first product launched on the platform is designed to treat menstrual migraine, supporting the 60% of women who report migraine symptoms associated with their menstrual cycle.

This platform will allow patients to experience a fully virtual experience by completing an online clinical assessment, having product delivered to their door, and being trained via video calls with a member of the UK customer service team.

Throughout 2021 we continued executing on the plan to expand international distribution by onboarding exclusive distribution partners outside the United States and United Kingdom (Table 1).

International Distributor List

North America

Eastern Europe

Pro Medical Baltic

Lithuania, Latvia, Belarus, Kazakhstan, and Ukraine

Western Europe

Silvert Medical Nv-Sa.

Belgium, Luxembourg, the Netherlands, and France

Medistar2 PTY Ltd

Kromax International Corp.

Kromax South Asia Pte Ltd.

Taiwan and China

Malaysia, Singapore, and Indonesia

United Arab Emirates and Oman

Saudi Arabia and Bahrain

Impact of COVID- 19

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact business partners.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact business partners, customers and the global supply chain.

In particular, the pandemic has resulted in a significant reduction in non-essential contact between patients and healthcare providers, shifting of focus by healthcare providers to the acute treatment of COVID-19 related illness regardless of specialty.

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While we began to experience disruptions from the COVID-19 pandemic during the three months ended March 31, 2020, we are unable to predict the impact that the COVID-19 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, the development, rollout and availability of effective treatments and vaccines, and the direct and indirect economic effects of the pandemic and containment measures, among others.

These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the development, rollout and availability of effective treatments and vaccines, the imposition of various protective public safety measures including vaccine mandates, as well as the transmissibility and effects of new coronavirus variants such as those experienced with respect to the Omicron variant beginning in early December 2021, and the direct and indirect economic effects of the pandemic and containment measures, among others.

The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets.

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As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which we operate.

Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown.

Because the COVID-19 pandemic affected, among other things, our access to prescribing physicians and their access to headache patients, on March 23, 2020 we suspended our earlier full-year revenue guidance until we could better understand the trajectory of our business, as well as announced a reduction in our activities, and adjusted our cash runway expectations in response to the potential adverse impact caused by the COVID-19 pandemic.

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This EUA is expected to remain in effect for the duration of the COVID-19 pandemic justifying emergency use of these devices unless terminated or revoked by the FDA (after which products may no longer be used).

The length of the effective period of this EUA is uncertain and the Company may have to incur significant marketing and other expenditures to achieve sales of the gammaCore Sapphire CV.

We did not recognize material revenue from the sales of gammaCore Sapphire CV during the year ended December 31, 2020.

There can be no assurance as to what impact the EUA and potential sales of gammaCore Sapphire CV will have on us, our business operations and financial condition.

We did not recognize material revenue from the sales of gammaCore Sapphire CV during the year ended December 31, 2021 , and we do not expect to recognize material revenue from the sales of gammaCore Sapphire CV in general.

Critical Accounting Policies and Estimates

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Revenue Recognition

Stock-based compensation

Loss contingencies

Revenue Recognition

Our principal source of revenue is product sales.

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In many cases, these amounts are fixed at the time of sale and the transaction price is reduced accordingly.

We have a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of discounts and rebates.

Our historical collection is an integral part of the estimation process related to revenues and receivables.

Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.

Revenue from the Veterans Administration and the Department of Defense

Revenue from sales of our products is recognized under terms of the Federal Supply Schedule, or FSS, and purchase orders from individual VA sites and a distributor who purchases our products on behalf of the DoD.

Revenue from the VA includes sales of therapy for up to 36 months.

Sales to the VA and DoD are at a fixed price and are usually paid at the time of delivery.

A cash refund is allowed under specific circumstances for undamaged and non-defective products.

Damaged or defective products are replaced at no charge.

United Kingdom Revenue

In the United Kingdom, an award from the Innovation Technology Payment program of the NHS and evidence-based recommendations published in December 2021 by NICE offer the potential for us to generate revenue from the treatment of CH.

This is the primary commercial channel from which our United Kingdom revenue is derived.

The first 93 days of therapy is free under this program.

The cost to produce the free therapy in the 93-day period is recorded as promotional expense within selling, general and administrative expenses.

Effective April 1, 2021, gammaCore Sapphire will be included in the new MTFM long-term reimbursement policy which supports commissioners and providers in the use of selected NICE approved, clinically effective and cost-saving medical devices, diagnostics and digital technologies that will improve patient outcomes.

Sales in the United Kingdom are primarily in increments of 93 -day therapy at a fixed price and are paid within 30 days.

Recently, product offering in the United Kingdom has expanded to 10-day therapy at a fixed price for menstrual migraine patients purchasing product through our UK e-commerce store.

All revenue associated with the menstrual migraine product are paid prior to product being shipped.

United States Commercial Revenue Outside of Federal Supply Schedule Channel

Revenue from our e-commerce and cash pay models through direct-to-physician and direct-to-consumer channel are usually recognized at the time of product shipment or delivery dependent on specific contractual terms, less any discounts or rebates.

Managed care rebates represent our estimated obligations to pharmacy benefit managers.

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The calculation of the accrual is based on an estimate of claims and the cost per claim that we expect to incur associated with inventory that exists in the distribution channel at period end.

Effective March 1, 2020, the amount of monthly co-payment assistance has been reduced to a maximum of $ 100 per prescription.

For most of 2019 we had a voucher program to provide gammaCore and gammaCore Sapphire promotional units, or “free voucher units,” to our distributor at no charge.

These free voucher units had a distinct product item number that enabled ease of tracking and allowed the product to be dispensed to the patient at no cost to the specialty pharmacy.

In this way, the voucher program was more like a standard sample program where free voucher units, which provide 31-days of therapy, were issued to the patient, rather than being sold and subject to specialty pharmacy reimbursement and therefore recognized as contra-revenue.

The cost to produce the free voucher units given to patients under this modified voucher program was recognized as promotional expense.

Our net sales reflect only gammaCore and gammaCore Sapphire units sold either for new patients, or existing patients’ refills, and none of the gammaCore and gammaCore Sapphire units prescribed and dispensed through our voucher program.

Our voucher program was terminated in December 2019.

The amount of monthly co-payment assistance is up to a maximum of $100 per prescription.

We expense the cost, as incurred, of product damaged as a result of shipping.

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Recoveries of receivables previously written off are recorded when received.

Revenue from the Veterans Administration and the Department of Defense

Revenue from the VA includes sales of therapy for up to 93 days.

Sales to the VA and DoD are at a fixed price and are usually paid at the time of delivery.

A cash refund is allowed under specific circumstances for undamaged and non-defective products.

Damaged or defective products are replaced at no charge.

United Kingdom Revenue

In the United Kingdom, an award from the Innovation Technology Payment program of the NHS and evidence-based recommendations published in December 2020 by NICE offer the potential for us to generate revenue from the treatment of CH.

This is the primary commercial channel from which our United Kingdom revenue is derived.

The first 93 days of therapy is free under this program.

The cost to produce the free therapy in the 93-day period is recorded as promotional expense within selling, general and administrative expenses.

Sales in the United Kingdom are primarily in increments of 93-day therapy at a fixed price and are paid within 30 days.

We value inventory at the lower of cost or net realizable value.

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We evaluate inventory with respect to our operating cycle and classify inventory as either current or long-term on our balance sheet.

We further consider inventory shelf life in our estimates regarding the net realizable value of our inventory.

If our actual demand is less than our forecast demand, we may be required to take additional excess inventory charges, which would decrease gross margin and adversely impact net operating results in the future.

We assess whether a valuation allowance should be established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard.

This assessment considers, among other matters, the nature, frequency and severity of recent losses;

We routinely assess whether a valuation allowance should be established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard.

The assessment of the realizability of deferred tax assets requires management to make numerous estimates and assumptions.

Factors that are considered in this assessment include the nature, frequency, and severity of recent losses;

a forecast of future profitability;

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We recognize compensation expense associated with the issuance of equity instruments to employees and non-employees for their services.

Based on the type of equity instrument, the fair value is estimated on the date of grant using the Black-Scholes option valuation model and is expensed in the consolidated financial statements over the service period.

The input assumptions used in determining fair value are expected life, expected volatility, risk-free rate and expected dividend yield.

Compensation expense is determined based on the grant date fair value and is expensed over the vesting period.

The grant date fair value of stock options is measured using the Black-Scholes option valuation model.

The input assumptions used in determining the fair value of options are expected life, expected volatility, risk-free interest rate and expected dividend yield.

These input assumptions are based on management’s estimates, and these estimates are evaluated periodically for reasonability.

The expected life of the option represents the period the stock-based awards are expected to be outstanding.

We use the simplified method for estimating the expected life of the options since we have limited historical experience to estimate expected term behavior.

Since our common stock was not publicly traded until June 2018 there has been insufficient volatility data available.

Accordingly, we calculate expected volatility using comparable peer companies with publicly traded shares over a term similar to the expected term of the options issued.

Since we currently do not intend to pay dividends on our common stock, we estimate the dividend yield percentage to be zero.

We base the risk-free interest rate on the U.S.

Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options being valued.

Loss contingencies

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The amounts accrued are based on the full amount of the estimated loss considering insurance proceeds, if applicable, and do not include legal fees expected to be incurred in connection with the loss contingency.

The process of analyzing, assessing, and establishing reserve estimates relative to legal proceedings involves a high degree of judgment.

Our consolidated financial statements do not reflect any material amounts related to unfavorable outcomes of claims and lawsuits to which we are currently a party because we currently believe that such claims and lawsuits are not expected to result in a material adverse effect on our financial condition.

However, it is possible that these contingencies could materially affect our results of operations, financial position and cash flows in a particular period if we change our assessment of the likely outcome of these claims and lawsuits to which we are currently a party.

Management estimates that its current insurance coverage is sufficient to meet the potential liabilities of pending legal proceedings.

Changes in facts and circumstances related to such proceedings could lead to significant adjustments to reserve estimates for such matters and could have a material impact on our results of operations, cash flows and financial condition in the period that reserve estimates are adjusted or paid.

Emerging Growth Company Status

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Other (income) expense:

Gain on extinguishment of debt

Gain on termination of joint venture

Interest and other income

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Loss before income taxes

Benefit (provision) for income taxes

Net sales for the year ended December 31, 2020 increased 46% as compared to 2019.

The increase of $ 1.1 million is due to increased sales to the Department of Veterans Affairs and in the United Kingdom.

This increase was partially offset by reduced sales in the U.S.

Benefit from income taxes

Net sales for the year ended December 31, 2021 increased 56% as compared to the year ended December 31, 2020.

The increase of $ 2.0 million is due to increased sales from the U.S.

Department of Veteran Affairs, as well as increased sales from outside the United States, and our U.S.

commercial channel.

We expect revenue from the Department of Veterans Affairs and United Kingdom to continue to be a majority of our revenue for the year ending December 31, 2021.

We expect our revenue to increase during the year ending December 31, 2021.

Gross profit increased $0.5 million for the year ended December 31, 2020 compared to 2019.

This increase was due to the increase in net sales along with the cost of goods sold activity described immediately below.

We expect that the majority of our 2022 fiscal year revenue will continue to come from the U.S.

Department of Veterans Affairs and United Kingdom, however, we expect to increase revenue from our commercial channel through cash pay models via direct-to-consumer approaches through our online stores in the United States and United Kingdom.

Further, we expanded our cash pay proposition to include direct to physician models within our 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, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).

Gross profit increased $2.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

This increase was due to the increase in net sales, as well as an inventory charge of $0.4 million in 2020 for which there was a corresponding charge of $70,000 in 2021.

Gross margin was 75% and 50% for the years ended December 31 , 2021 and 2020 , respectively.

This de crease in gross margin was primarily due to an inventory charge of $0.4 million recorded in 2020, which was the result of a book value adjustment of certain inventory components to net realizable value.

Excluding the 2020 inventory charge, gross margin for the year ended December 31, 2020 was 63%.

Excluding the 2021 and 2020 inventory charges, gross margin for the years ended December 31, 2021 and December 31, 2020 was 76% and 63%, respectively.

The increase in gross margin, excluding the 2020 inventory charge, was largely due to the more favorable absorption of labor and overhead costs, and product mix.

We expect revenue to increase in 2021, which would result in a further increase in our gross margin.

Our gross margin will also be impacted by product mix.

The selling of our products with longer periods of therapy, have had a favorable impact on our gross profit and gross margin.

Gross profit and gross margin in 2022 will be largely dependent on revenue levels, product mix, and the pricing levels of our therapy.

Research and Development

Research and development expenses of $4.2 million for the year ended December 31, 2020 decreased by $5.7 million, or 58%, as compared to 2019.

This reduction was primarily due to significant reductions in near-term investment in research and development, including the early termination of our PREMIUM II clinical trial.

We do not expect a material change in our research and development expense for the year ending December 31, 2021.

Savings from the 2020 termination of our PREMIUM II clinical trial, may be partially offset, by the targeted expenditures to support research and development activities in other therapeutic indications.

Research and development expense of $ 2.5 m illion for the year ended December 31, 2021 decreased by $1.7 million, or 40%, as compared to 2020.

This reduction was primarily due to significant reductions in company sponsored clinical trial costs offset by targeted investments to support certain investigator-initiated trials, scientific publications and product development.

We expect research and development expenses to increase in 2022 largely due to planned expenditures in connection with the next generation of our therapy delivery platform.

Selling, General and Administrative

Selling, general and administrative expense of $21.8 million for the year ended December 31, 2020 decreased by $13.6 million, or 38 %, as compared to 2019.

This decrease in expenses was primarily driven by reductions of $5.3 million in personnel costs and $8.7 million in non-personnel costs for sales and marketing activities, partially offset by a $0.6 million write-off of an operating lease right of use asset in 2020.

We do not expect a material increase in our selling, general, and administrative expense for the year ending December 31, 2021, however, we may make targeted expenditures to support our commercial efforts.

Selling, general and administrative expense of $ 21.6 million for the year ended December 31, 2021 was consistent with the prior year.

Excluding the $0.6 million write-off of an operating lease right of use asset in 2020, selling general and administrative expense was $21.2 million for the year ended December 31, 2020.

We expect an increase in our 2022 selling, general, and administrative expense as we may make targeted investments to support our commercial efforts.

Restructuring and Other Severance Related Expenses

Restructuring and other severance related costs of $464,606 for the year ended December 31, 2020 primarily consist of severance related expenses in connection with personnel changes in the position of Chief Medical Officer.

Restructuring and other related charges for the year ended December 31, 2019 of $ 1,997,300 were due to our restructuring plan announced on May 29, 2019, and expenses incurred in connection with separation agreements with two of our former officers.

Interest and Other Income

There were no restructuring and other severance related costs recorded during the year ended December 31, 2021.

Restructuring and other severance related charges for the year ended December 31, 2020 of $ 464,606 consisted of severance related expenses in connection with personnel changes.

Other (Income) Expense

Other (income) expense for the year ended December 31, 2021 of 1.9 million primarily represents the gain of $1.4 million recorded in association with the forgiveness of the PPP Loan and the gain of $0.5 million recorded related to the termination of the joint venture in Australia.

Interest and other income of $10,678 and $ 84,327 for the years ended December 31, 2021 and 2020, respectively, primarily consisted of interest earned on cash, cash equivalents and marketable securities.

Interest income was slightly offset by interest expense related to our loan under the PPP and financing certain of our insurance premiums.

Liquidity and Capital Resources

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Net cash used in operating activities was $13.6 million and $ 20.1 million for the years ended December 31, 2021 and 2020, respectively.

This decrease is primarily due to (i) a decrease in our net loss from operations, (ii) less cash being used for working capital components such as inventory and accrued bonuses, and (ii) the sale of our state NOLs, and research and development tax credits for the year ended December 31, 2018 for which we received a net cash amount of approximately $1.2 million in 2020.

The reduction in 2021 is primarily due to a decrease in our net loss from operations, and less cash being used for working capital components such as inventory and accounts payable.

Investing Activities

Net cash used in investing activities was $8.0 million and $51.0 million for the years ended December 31, 2020 and 2019, respectively.

This decrease reflects the decline in funds received from the maturity of marketable securities, partially offset by a decrease in our purchase of marketable securities.

Net cash provided by investing activities was $18.2 m illion for the year ended December 31, 2021.

For the year ended December 31, 2020, net cash used in investing activities was $8.0 million.

This increase reflects the increase in funds received from the maturity of marketable securities partially offset by a decrease in our purchases of marketable securities during the current period.

Financing Activities

Net cash provided by financing activities was $19.0 million for the year ended December 31, 2020, primarily representing cash proceeds of $17.7 million from the issuance of common stock, $1.4 million from our loan under the PPP, and $1.2 million from a debt financing of certain of our insurance premiums.

These positive cash flows were slightly offset by $1.1 million in repayments related to the financing of our insurance premiums.

During the year ended December 31, 2019, we received proceeds of $0.8 million from the Financing Agreement to fund certain of our insurance premiums of which $0.7 million was repaid as of December 31, 2019.

Net cash provided by financing activities was $25.7 million for the year ended December 31, 2021, representing net proceeds from the sale of common stock.

For the year ended December 31, 2020, net cash provided by financing activities was $18.9 representing net cash proceeds of $17.5 million from the issuance of common stock and $1.4 million from our loan under the PPP .

Liquidity Outlook

Because we have had recurring losses, negative cash flows from operating activities, limited cash on hand and expect to continue to incur losses for the near future, the report of our independent auditors with respect to our financial statements as of December 31, 2020 and for the year ended December 31, 2020 contain an explanatory paragraph as to the factors that raise substantial doubt about the Company’s ability to continue as a going concern.

Our financial statements have been prepared assuming we will continue as a going concern.

We have experienced recurring losses since our inception.

We incurred net losses of $23.5 million and $45.1 million for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, our accumulated deficit was $107.0 million.

As of December 31, 2021, our cash, cash equivalents and marketable securities totaled $34.7 million.

Lincoln Park Purchase Agreement

On March 27, 2020, we entered into a Purchase Agreement with Lincoln Park giving us the right to sell to Lincoln Park shares of common stock having an aggregate value of up to $25,000,000, subject to certain significant limitations of the amount and timing of any such sales due to terms and conditions set forth in the Purchase Agreement.

During 2020, we sold 10,179,676 shares of common stock under the Purchase Agreement, resulting in aggregate proceeds of approximately $15.5 million to the Company.

As of December 31, 2020, we had the right to sell under the Purchase Agreement approximately $9.5 million of additional shares of common stock.

In January 2021, we sold an additional 2,750,000 shares of common stock under the Purchase Agreement, resulting in aggregate proceeds of approximately $6.9 million to the Company.

We terminated the agreement on March 11, 2021.

Paycheck Protection Program Loan (PPP)

In May 2020, we entered into a promissory note, or the Note with Citibank, N.A., or the Lender, evidencing an unsecured loan, or the Loan, in the amount of $1.4 million made to us under the PPP.

The loan cash proceeds in this amount were received by us in May 2020.

The PPP is a program of the U.S.

Small Business Administration or the SBA, established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act.

Under the PPP, the proceeds of the Loan may be used to pay payroll and make certain covered interest payments, lease payments and utility payments, or Qualifying Expenses.

We used the entire Loan amount for Qualifying Expenses under the PPP.

The interest rate on the Loan is 1.0% per annum.

The Note matures on February 2, 2023.

On September 2, 2021, or the First Payment Date, we are required to pay all accrued interest under the Loan that is not forgiven in accordance with the terms of the PPP.

Additionally, on the First Payment Date and on the second day of each month thereafter until February 2, 2023, we must make equal monthly payments of the amount of principal under the Loan that is not forgiven in accordance with the terms of the PPP and related accrued interest thereon.

We intend to apply for loan forgiveness under the guidelines set out by the SBA, which would result in a delay or elimination of the repayment period, if accepted in whole or in part by the Lender and SBA.

The Note contains events of default and other conditions customary for a Note of this type.

Under the terms of the CARES Act, PPP loan recipients can be granted forgiveness for all or a portion of the loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of Qualifying Expenses, and provided certain payroll thresholds are maintained.

The terms of any forgiveness also may be subject to further requirements in any regulations and guidelines the SBA may adopt.

No assurance can be provided that we will obtain forgiveness of the Note in whole or in part.

Official guidance and interpretations of the requirements of the program have been limited and have been changing over time.

Despite our good-faith belief that we properly satisfied all eligibility requirements for the PPP loan, there has been increasing scrutiny of public companies that received loans, and there can be no assurance that we will not become subject to regulatory or other scrutiny and a request for repayment of some or all of the loan.

Sale of Net Operating Losses

We may be eligible, from time to time, to receive cash from the sale of our Net Operating Losses under the State of New Jersey’s NOL Transfer Program.

On May 6, 2020 we received a net cash amount of approximately $1.2 million from the sale of our state NOLs and research and development tax credits for the year ended December 31, 2018.

We expect to continue to incur substantial negative cash flows from operations for at least the next several years as we commercialize gammaCore.

We intend to continue to make targeted investments in building our commercial infrastructure and research and development.

In July 2020, we received an EUA for use of its gammaCore Sapphire CV nVNS therapy for the acute treatment of asthma exacerbations in known or suspected COVID-19 patients.

The length of the effective period of this EUA is uncertain and the Company may have to incur significant expenditures to achieve sales of gammaCore Sapphire CV.

There can be no assurance as to what impact the EUA and potential sales of gammaCore Sapphire CV will have on us, our business operations and financial condition and gammaCore Sapphire CV has not yet generated significant revenue .

Although we expect that our existing capital resources, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months, this estimate is based on assumptions that may prove to be wrong, and could exhaust our available capital resources sooner than we expect.

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.

We may need to reduce our activities significantly more than our current operating plan and cash flow projections assume in order to fund operations for at least the next 12 months.

There is no assurance that we will generate sufficient cash flow and funding through our operating results or the sale of securities or from a strategic transaction or otherwise, raising substantial doubt about our ability to continue as a going concern within one year of the date the accompanying financial statements are issued.

The inability to generate sufficient cash flow or raise funds through the sources discussed above could have a material adverse effect on our business, results of operations, and financial condition, and could require us to reduce or curtail activities, or cease operations.

Our expected cash requirements for the next 12 months and beyond are based on the commercialization success of our products and our ability to reduce operating expenses.

We have experienced recurring losses since our inception.

We incurred net cash used in operating activities of $13.6 million and $20.1 million for the years ended December 31, 2021 and 2020, 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 its headache business from the ongoing COVID-19 pandemic.

These conditions raise substantial doubt about our ability to continue as a going concern.

Even if we are not required to curtail our activities sooner, our ability to execute our operating plan beyond the next 12 months depends on our ability to increase revenue, reduce operating expenses and obtain additional funding through the sale of equity and or debt securities, a strategic transaction or otherwise.

However, these alternatives may not be available to us on attractive terms, or at all.

We have historically funded our operations from the sale of our common stock.

During the year ended December 31, 2021, we received net proceeds of approximately $25.7 million from such sales and as of December 31, 2021, our cash, cash equivalents and marketable securities totaled $34.7 million.

We believe that the substantial doubt of our ability to continue as going concern is alleviated based on proceeds received from recent offerings of our common stock.

We believe our cash and marketable securities 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 Annual Report 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 for 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 increase our research and development activities and the growth of our business may be negatively impacted.

As a result, we may be unable to compete effectively.

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.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis