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Item 7. Management’s Discussion and Analysis

2023-03-08 compared with 2022-03-10 · 145 added, 114 removed, 172 unchanged (60% 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, 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.

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.

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.

Information concerning the shares of our common stock and related share prices in this Item 7 has been adjusted to reflect the 1-for-15 reverse split of our common stock that was made effective on February 15, 2023.

(See, “Item 8 – Notes to consolidated financial statements – Note 2 - Basis of Presentation”).

We are a commercial stage bioelectronic medicine and wellness company dedicated to improving health through our non-invasive vagus nerve stimulation (“nVNS”) technology platform.

Our focus is the commercialization of medical devices for the management and treatment of certain medical conditions and consumer product offerings utilizing nVNS to promote general wellbeing and human performance in the United States and select overseas markets.

nVNS is a platform bioelectronic technology that modulates neurotransmitters and immune function through its effects on both the peripheral and central nervous systems.

Our nVNS treatment is delivered through a proprietary high-frequency burst waveform that safely and comfortably passes through the skin and stimulates therapeutically relevant fibers in the vagus nerve.

Various scientific publications suggest that VNS works through several mechanistic pathways including the modulation of neurotransmitters.

Historically, vagus nerve stimulation or VNS, required an invasive surgical procedure to implant a costly medical device.

This limitation has generally limited VNS from being used by anyone other than the most severe patients.

Our medical devices and wellness products are self-administered and intended for regular or intermittent use over many years.

Our business is supported by our in-house capabilities spanning research and development, regulatory affairs and compliance, sales and marketing, product testing, assembly, fulfillment, and customer support.

We derive revenues from the sale of medical devices and wellness products in the United States and select overseas markets.

We have two principal product categories:

Handheld, personal use medical devices for the management and treatment of certain medical conditions;

• Handheld, personal use consumer product offerings utilizing nVNS technology to promote general wellbeing and human performance.

We believe our nVNS treatment may be used in the future to effectively treat additional medical conditions or improve human performance.

Our goal is to be a leader in non-invasive neuromodulation by using our proprietary nVNS platform technology to deliver better health.

To achieve this, we offer multiple propositions:

• gammaCore for the treatment of certain medical conditions such as primary headache;

• Truvaga for the support of general health and wellbeing;

• TAC-STIM for human performance as defined by the United States Air Force Research Laboratory.

Our flagship model, gammaCore Sapphire, is a prescription medical device currently FDA cleared for a variety of primary headache conditions.

gammaCore is available by prescription only and Sapphire is a portable, reusable, rechargeable and reloadable personal use option for patients to use at home or on the go.

Prescriptions are written by a health care provider and dispensed from a specialty pharmacy, through the patient’s healthcare system, or fulfilled directly to certain patients directly from our facility in Rockaway, NJ.

After the initial prescription is filled, access to additional therapy can be refilled for certain of our gammaCore products periodically through the input of a prescription-only authorization.

Truvaga is a personal use consumer electronics wellness product that does not require a prescription and is available direct-to-consumer from electroCore at www.truvaga.com .

Truvaga is not intended for medical use.

TAC-STIM is a form of nVNS for human performance and has been developed in collaboration with the United States Department of Defense Biotech Optimized for Operational Solutions and Tactics, or BOOST program.

We are exploring strategies to make this product offering available to other branches of the active-duty military and certain human performance professionals in the United States and abroad.

TAC-STIM is available as a Commercial Off the Shelf (COtS) solution to professional organizations and is the subject of ongoing research at the United States Air Force Research Laboratory.

TAC-STIM is not intended for medical use.

We have generally focused most of our historical sales efforts in two channels, the United States Department of Veterans Affairs and United States Department of Defense, or VA/DoD, and the United Kingdom utilizing our FDA cleared and CE marked product, gammaCore.

The United States Department of Veteran Affairs comprised 60.8 % of our revenue during the year ended December 31, 2022.

We expect that a majority of our 2023 sales will be made pursuant to our qualifying contract under the Federal Supply Schedule or FSS, which was secured by us in December 2018, as well as open market sales to individual facilities within the government channels.

The FSS is scheduled to expire on January 15, 2024.

We intend to request an extension of the FSS from the United States Department of Veteran Affairs, but there is no assurance the FSS will be renewed, and if at all renewed at terms favorable to us.

Our sales function in this channel is comprised of employees and independent contractors.

Sales under the MTFM program for cluster headache in the UK comprised 15.1% of our revenue during the year ended December 31, 2022.

In 2023, we plan on continued expansion under this program, as well as continue to utilize distribution partners to commercialize our nVNS technology in territories outside the United States and United Kingdom.

In 2023, we expect NICE to review the guidance document and any changes in recommendation or pricing may adversely impact our ability to work with NHS England on the MTFM program.

We believe there may be significant opportunities beyond these areas.

In 2023, therefore, we plan to continue our investment in expanded commercial adoption of gammaCore with cash pay, physician dispense, and direct-to-consumer approaches, and continue our early efforts to begin building wellness and human performance propositions through Truvaga and TAC-STIM.

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

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 our products, 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.”

Capital Activities

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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.

If we raise additional funds by issuing equity or debt securities, either through the sale of securities pursuant to a registration statement or by other means, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders.

On July 2, 2021, we completed a public offering of 1,380,000 shares of our common stock at a purchase price of $15.00 per share.

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On October 4, 2021, we issued 13,333 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

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 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

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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.

In December 2022, we announced the launch of an ecommerce 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.

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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

In 2022, we continued executing on the plan to expand international distribution by onboarding exclusive distribution partners outside the United States and United Kingdom.

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 non-refundable, upfront payment for the licenses and rights granted to Teijin.

We 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 of the Teijin license agreement 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.

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, 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.

We believe these restrictions have limited our sales force’s ability to generate additional interest in the Company’s products.

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, 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.

The global impact of the outbreak has been rapidly evolving and many countries have reacted by instituting quarantines, mandating business and school closures and restricting travel.

Certain states and cities, including those where our principal place of business is located and sales force seeks to operate, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, and restrictions on types of business that may continue to operate.

We cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will expire.

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 of effective treatments and vaccines.

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.

Compared to our earlier expectations, we believe that our results for the year ended December 31, 2021 reflect a negative impact from, among other things, the global pandemic.

Moreover, our expectations for at least the beginning of 2022 have also been adversely affected by both the uncertainty and potential negative impact of the global pandemic.

Depending upon the duration and severity of the pandemic, the continuing effect on our results and outlook over the long term remains uncertain.

In July 2020, the Company 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.

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).

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.

The ongoing coronavirus pandemic has impacted, and may continue to impact, our headquarters, manufacturing, and warehousing and ecommerce facilities, as well as those of our third-party vendors, including through the effects of facility closures, employee furloughs, reductions in operating hours, staggered shifts and other social distancing efforts, labor shortages, decreased productivity and unavailability of materials or components.

The ongoing coronavirus pandemic may also impact our ability to sell our product, ship our product on a timely basis and may increase our costs.

The spread of coronavirus caused us to modify certain of our business practices (including social distancing practices, requiring non-essential production related team members to work remotely where possible, restricting business travel, cancelling certain events, and limiting visitor access to our facilities), and we may relax, extend, modify, or take further actions that may be required by government authorities or that we determine are necessary or advisable.

Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our business, which could have an adverse effect on our operations.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

In addition, work-from-home and related business practice modifications present significant challenges to maintaining our corporate culture, including employee engagement and productivity, both during the immediate pandemic crisis and as we make additional adjustments in the eventual transition from it.

Implementing new business practices in order to protect employees, vendors and other parties with whom we interact may result in increased costs.

Furthermore, even if we follow what we believe to be best practices, there can be no assurance that our measures will prevent the transmission of COVID- 19 between employees.

Any incidents of actual or perceived transmission may expose us to liability claims, adversely impact employee productivity and morale, and result in negative publicity and reputational harm.

Additionally, our sales and marketing efforts are, and may from time to time be, adversely affected by protocols for screening and restricting outside visitors and vendors that have been adopted by the Department of Veterans Affairs, commercial prescribers and other third parties.

Officially imposed quarantines and self-quarantines could also interfere with patients’ ability to see a health care provider and obtain our gammaCore therapy.

Critical Accounting Policies and Estimates

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Our principal source of revenue is product sales.

Our contracts with customers generally contain a single performance obligation and we recognize revenue from product sales when we have satisfied our performance obligation by transferring control of the product to our customers.

Our contracts with customers generally contain a single performance obligation and we recognize revenue from product sales when or as we have satisfied our performance obligation by transferring control of the product to our customers.

Control of the product generally transfers to the customer upon delivery.

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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 sales of our products is recognized under terms of the Federal Supply Schedule, or FSS, as well as purchase orders for open market sales to 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.

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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.

Effective April 1, 2021, gammaCore Sapphire was 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 health.

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.

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 ecommerce 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.

Revenue from our cash pay models through direct-to-physician and direct-to-consumer channels and our ecommerce 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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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.

Licensed Products

We license a portion of our devices through our cash pay channels.

The cost of these licensed devices is capitalized and included in Other Assets in our Balance Sheet at December 31, 2022 and 2021, and is being recognized as cost of goods sold over the estimated useful life of the device.

I f certain licensed devices are returned and no longer meet quality specifications or the carrying amount of certain licensed devices are no longer deemed to be recoverable, we record a charge to cost of goods sold to write down such licensed devices to zero.

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.

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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.

We use the simplified method for estimating the expected life of the options.

The fair value of each stock option award granted was estimated on the date of grant using the Black-Scholes model.

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.

Accordingly, we have used an expected volatility based on historical common stock volatility of our peers.

Beginning in December 2022, we began incorporating our historical common stock volatility at a weighting of 50% of the total composite volatility rate.

During 2023, the Company will continue to evaluate the volatility rate used to value stock options.

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

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Selling, general and administrative

Restructuring and other severance related charges

Total operating expenses

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Net sales for the year ended December 31, 2022 increased 58% as compared to the year ended December 31, 2021.

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 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.

The increase of $ 3.1 million 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 $ 139,000 .

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 last half of 2022.

We expect that the majority of 2023 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 ecommerce stores , 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).

In addition, we believe we may generate additional revenue from sales of our Truvaga and TAC-STIM products.

Gross profit in creased $2.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Gross margin was 81% and 75% for the years ended December 31, 2022 and 2021, respectively.

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.

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.

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 increase in gross margin was primarily due to the favorable impact on gross margin associated with the licensing of a portion of our devices in the year ended December 31, 2022.

Moreover, in 2022, we 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, contributed to the increase in gross margin.

Gross profit and gross margin in 2023 will be largely dependent on revenue levels, product mix, and any changes in the estimated useful lives of licensed devices.

Research and Development

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.

Research and development expense of $ 5.5 m illion for the year ended December 31, 2022 in creased by $3.0 million.

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 .

I n 2023, we plan to continue to invest in the next generation of our therapy delivery platform.

Selling, General and Administrative

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

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.

Selling, general and administrative expense of $ 24.3 million for the year ended December 31, 2022 increased by $2.8 million 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 ecommerce stores, 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 phy sicians, women's health, pain management, sports medicine, functional and integrative medicine professionals, as well as chiropractors, and PharmDs (Doctors of Pharmacy).

In 2023, w e plan on continuing to make targeted investments in sales and marketing to support our commercial efforts.

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.

Other (income) expense for the year ended December 31, 2021 primarily represents the gain of $1.4 million related to the forgiveness of the Paycheck Protection Program loan and the gain of $0.5 million recorded related to the termination of the joint venture in Australia.

The increase in Interest and other income is primarily due rising interest rates.

Benefit from Income Taxes

The Benefit from income taxes of $0.4 million and $0.9 million for the years ended December 31, 2022 and 2021, respectively, primarily represent the sale of our state net operating losses and research and development tax credits under the State of New Jersey’s NOL Transfer Program.

Liquidity and Capital Resources

At December 31, 2021 our cash, cash equivalents, and marketable securities was $34.7 million compared to $22.6 million at December 31, 2020.

(in millions)

At December 31, 2022 our cash, cash equivalents, and restricted cash was $18.0 million compared to $34.7 million at December 31, 2021.

(in thousands)

Net cash (used in) provided by

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Net cash used in operating activities was $ 16.6 million and $ 13.6 million for the years ended December 31, 2022 and 2021, respectively.

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.

This increase is primarily due to the increase in our net loss from operations.

Investing Activities

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.

No cash was provided by investing activities during the year ended December 31, 2022.

For the year ended December 31, 2021, net cash provided by investing activities was $18.2 million reflecting funds received from the maturity of marketable securities partially offset by our purchases of marketable securities.

Financing Activities

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 .

No cash was provided by financing activities during the year ended December 31, 2022.

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

Liquidity Outlook

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

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.

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.

In 2023, we expect to continue to incur substantial negative cash flows from operations.

We intend to continue to make targeted investments in sales and marketing, as well as the next generation of our therapy delivery platform.

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.

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.

We expect that a majority of our 2023 sales will be made pursuant to our qualifying contract under the Federal Supply Schedule, or FSS, as well as open market sales to individual facilities within the government channels.

The FSS is scheduled to expire on January 15, 2024.

We intend to request an extension of the FSS from the United States Department of Veteran Affairs , but there is no assurance the FSS agreement will be renewed, if at all, or at terms favorable to us.

In addition, other possible 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.

Even if we are not required to curtail our activities sooner, our ability to execute our operating plan beyond the next 12 months from the date these financial statements are issued depends on our ability to increase revenue, control operating expenses and obtain additional funding from 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.

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 these financial statements are issued.

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.

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 February 13, 2023, we held a special meeting (the “Special Meeting”) of our stockholders.

At the Special Meeting, our shareholders voted to approve an amendment to our Certificate of Incorporation as amended to effect a Reverse Stock Split of our ordinary shares (the “Reverse Stock Split”) at a ratio of not less than 1-for 5 and not more than 1-for-50, with such ratio and the implementation and timing of the Reverse Stock Split to be determined by the our board of directors in its sole discretion.

Following the Special Meeting, our board of directors approved a 1-for-15 Reverse Stock Split and our Certificate of Incorporation, as amended was amended accordingly.

The Reverse Stock Split became effective on February 15, 2023.

The purpose of the Reverse Stock Split was to increase the per share trading price of our common stock on the Nasdaq Capital Market to regain compliance with the Bid Price Rule.

On March 6, 2023, we received a letter from Nasdaq confirming that our common stock had regained compliance with the Bid Price Rule, and as a result, our common stock continues to trade on the Nasdaq Capital Market.

If in the future we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the Bid Price Rule, Nasdaq may take steps to delist our common stock.

The Reverse Stock Split of our common stock had the effect of reducing the number of shares of common stock outstanding.

There can be no assurance that the value and liquidity of our common stock will not be adversely affected by the Reverse Stock Split, which in turn could have a material adverse effect on our ability to raise the additional capital that we may require or increase the dilutive impact of any such financing.

Off-Balance Sheet Arrangements

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Item 7. Management’s Discussion and Analysis