Item 7. Management’s Discussion and Analysis
Item 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Annual Report, including those set forth under Item 1 A. “Risk Factors” and under “Forward-Looking Statements” in this Annual Report.
Note: 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”).
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Overview
electroCore is a bioelectronic medicine and general wellness company dedicated to improving health and quality of life through our proprietary non-invasive vagus nerve stimulation (“nVNS”) technology platform and related product offerings.
nVNS modulates neurotransmitters 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 nVNS works through a variety of 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 has generally limited VNS from being used by anyone other than the most severe patients. Our non-invasive medical devices and general wellness products are self-administered and intended for regular or intermittent use over many years.
Our capabilities include product development, regulatory affairs and compliance, sales and marketing, product testing, electromechanical assembly, fulfillment, and customer support. We derive revenues from the sale of 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 such as primary headache; and
•
Handheld, personal use consumer products utilizing nVNS technology to promote general wellness and human performance.
We believe our nVNS products may be used in the future to effectively treat additional medical conditions.
Our goal is to be a leader in non-invasive neuromodulation to deliver better health. To achieve this, we offer multiple propositions:
•
Prescription gammaCore medical devices for the treatment of certain prescription FDA cleared medical conditions such as primary headache;
•
Truvaga for the support of general health and wellbeing; and
•
TAC-STIM for human performance.
Our flagship gammaCore Sapphire is a prescription medical device that is 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 shipped directly to certain patients in the United States 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 through the input of a prescription-only authorization.
We offer two versions of our Truvaga products for the support of general health and wellbeing. Truvaga 350 is a personal use consumer electronics general wellness product and Truvaga Plus, which was launched in April 2024, is our next generation, app-enabled general wellness product. Neither product requires a prescription and is available direct-to-consumer from electroCore at www.truvaga.com or through online retailers such as Amazon.com. TAC-STIM handset 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. TAC-STIM handsets are available as a Commercial Off the Shelf (COtS) solution to professional organizations and are the subject of ongoing research and evaluation within the United States Air Force Special Operations Command, the United States Army Special Operations Command and at the United States Air Force Research Laboratory.
Truvaga and TAC-STIM are intended for general wellness in compliance with the FDA guidance document entitled “General Wellness: Policy for Low-Risk Devices; Guidance for Industry and FDA Staff, issued on September 27, 2019.” Truvaga and TAC-STIM handsets are not intended to diagnose, treat, cure, or prevent any disease or medical condition.
We are exploring strategies to make our TAC-STIM product available to other branches of the active-duty military, first responders, elite athletes and certain human performance professionals in the United States and abroad. Our TAC-STIM product is not a medical device and is not intended to diagnose, cure, mitigate, prevent, or treat a disease or condition.
Our two largest customers by revenue are the United States Department of Veterans Affairs and United States Department of Defense, or VA , and the United Kingdom National Health Service or NHS utilizing our FDA cleared and CE marked product, gammaCore .
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The VA comprised 70.6 % of our revenue during the year ended December 31, 2024 . The majority of our 2024 sales were made pursuant to our qualifying contract under the FSS, which was secured by us in December 2018, as well as open market sales to individual facilities within the government channels. The initial term of our FSS contract was scheduled to expire on January 15, 2024. On January 5, 2024, we obtained a modification to the initial contract, temporarily extending the term from January 15, 2024, to March 14, 2024, and subsequently extended the term to June 14, 2025, while the U.S. Department of Veteran Affairs VA Federal Supply Schedule Service reviews our follow-on offer application for a replacement contract. Although we continue to work with the appropriate government personnel to replace our FSS contract, there can be no assurance that the VA will accept our follow-on application to replace our contract which may limit or eliminate our ability to sell certain gammaCore products into the government channel pursuant to our qualifying FSS contract or individual facilities that utilize our FSS contract number for open market purchases.
In August 2023, we signed a non-exclusive distribution agreement with Lovell Government Services, or Lovell, providing Lovell the right to list and distribute certain gammaCore products into the federal market. Lovell is a Service-Disabled Veteran-Owned Small Business (SDVOSB) offering medical and pharmaceutical goods and services to federal healthcare providers. Listing products with Lovell is intended to streamline the sales process to a variety of government procurement channels through Lovell’s compliance with contracting regulations and its provision of logistical solutions connected directly into government contracting portals, all of which are intended to help government agencies meet their SDVOSB procurement goals. Customers for these vehicles are federal healthcare systems such as the Veterans Health Administration (VHA, which includes the VA), the Military Health System (MHS), and Indian Health Services (IHS), which we believe serve up to approximately 21 million patients combined.
Between November 2023 and January 2024, certain gammaCore products
were added to the FSS, the DoD’s Distribution and Pricing Agreement (DAPA), GSA
Advantage, and Defense Logistics Agency’s ECAT system procurement portals
through the Lovell contract vehicles, enabling the purchase of gammaCore
products within the government channel and throughout the federal markets,
including, but not limited to, the VA. The gammaCore products offered through
Lovell provide government customers with similar product configuration options
to those currently sold through our existing FSS contract and open market sales
made directly to individual VA facilities. We expect a portion of our U.S. 2025
sales of gammaCore to continue to be made pursuant to qualifying FSS, GSA,
DAPA, ECAT contracts and open market sales to individual VA facilities. Our sales function in this channel is
comprised of employees and an increasing number of independent contractors.
Sales under the UK Med Tech Funding Mandate, or MTFM, for CH in the UK comprised 6.6 % of our revenue during the year ended December 31, 2024 . In
2025, we plan on continued use of this program. In 2023, NHS granted
a two-year extension in which our prescription gammaCore therapy will continue
to be listed in the NHS catalogue. This extension is through March 17,
2026, with an option for us to extend an additional two
years. In 2025, 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 and could have an adverse impact on our financial
results. We continue to utilize distribution partners to commercialize our nVNS
technology in selected territories outside the United States and United Kingdom.
We believe there may be significant opportunities beyond these two areas. Specifically, we believe there may be a large commercial opportunity for our gammaCore medical device with additional insurance covered lives, cash pay, physician dispense, and direct-to consumer approaches, along with wellness and human performance propositions through our Truvaga and TAC-STIM handsets. Therefore, we will continue our investments to expand our efforts in these channels and markets in 2025 .
On December 17, 2024, we entered into a definitive agreement to acquire NURO. NURO is a commercial stage healthcare company that develops and commercializes neurotechnology devices to address unmet needs in the chronic pain market through its Quell® platform: a wearable, app and cloud-enabled neuromodulation platform that is indicated for the treatment of fibromyalgia symptoms (Quell Fibromyalgia) and lower-extremity chronic pain (Quell 2.0). The transaction does not include NURO’s Japan-related DPNCheck® technology and business, which are expected to be divested by NURO prior to closing of the transaction. Consummation of the transaction is subject to approval by holders of at least a majority of the outstanding shares of NURO common stock entitled to vote on the merger, and the filing with the SEC of NURO’s Form 10-K with respect to the fiscal year ended December 31, 2024, in addition to other closing conditions.
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 our gammaCore medical device among clinicians, patients, and third-party payers, expand the use of our gammaCore medical device to additional therapeutic indications, and to develop our nascent wellness and human performance business including the planned launch of Truvaga Plus, our next generation app-enabled device under the Truvaga brand.
Because of the numerous risks and uncertainties associated with our commercialization efforts, as well as research and product development activities, there may be uncertainty regarding our ability to achieve or maintain profitability. 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 commercial 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. 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. See also “Liquidity Outlook.”
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Capital Activities
On January 24, 2025, we filed a Form S-3 registration
statement (with an amendment filed on January 31, 2025), or the 2025 Shelf
Registration Statement, with the SEC, for the potential offering and issuance
from time to time of common stock, preferred stock, warrants, rights, debt
securities and units, up to an aggregate amount of $100 million. The 2025 Shelf
Registration Statement is currently under review by the SEC. The proposed
maximum offering price per unit and the proposed maximum aggregate offering price
per class of security in any future offering under the 2025 Registration
Statement will be determined from time to time by us in connection with the
issuance by us of the securities registered under the 2025 Shelf Registration
Statement. As of December 31, 2024, we have approximately $46.2 million
remaining for potential issuance under the 2022 Shelf Registration Statement
(as defined below). 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. The 2022 Shelf Registration
Statement expires on the earlier of July 24, 2025 and the effectiveness under
the Securities Act of the 2025 Registration Statement.
On November 29, 2024, we entered into the Sales Agreement
with Wainwright. Under the Sales Agreement, the Company may offer and sell
shares of its common stock, par value $0.001 per share, from time to time
having an aggregate offering price of up to $20 million (the “ATM Shares”)
during the term of the Sales Agreement through Wainwright, acting as sales
agent. The Company has filed a prospectus supplement relating to the offer and
sale of the Shares pursuant to the Sales Agreement. The ATM Shares will be issued
pursuant to the Company’s previously filed and effective Registration Statement
on Form S-3 (File No. 333-262223) (the “2022 Shelf Registration Statement”),
which was initially filed with the Securities and Exchange Commission (the
“SEC”) on January 18, 2022 and declared effective on January 25, 2022. The
Company intends to use the net proceeds from any offering pursuant to the Sales
Agreement to continue to fund sales and marketing, working capital and for
other general corporate purposes. As of March 6, 2025, the
Company had approximately $19.78 million of ATM Shares remaining available for
issuance under the Sales Agreement.
On June 5, 2024, in connection with a registered direct
offering and concurrent private placement with an institutional and accredited
investor, we issued and sold pre-funded warrants to purchase up to 225,000
shares of common stock, and warrants to purchase up to 112,500 shares of common
stock. Each pre-funded warrant was sold together with one-half of one warrant
to purchase one share of common stock, at a combined offering price of $6.4925
per pre-funded warrant and related one-half of one warrant.
Additionally, on June 5, 2024, in a separate concurrent
private placement with certain institutional and accredited investors and six
of the Company's officers and directors, we issued and sold 438,191 shares of
common stock, pre-funded warrants to purchase up to 770,119 shares of common
stock, and warrants to purchase up to an aggregate of 604,150 shares of common
stock. Each share of common stock was sold together with one-half of one
warrant to purchase one share of common stock, at a combined offering price of
$6.4925 per share of common stock and related one-half of one warrant. Each
pre-funded warrant was sold together with one-half of one warrant to purchase
one share of common stock, at a combined offering price of $6.4925 per
pre-funded warrant and related one-half of one warrant.
The common stock purchase warrants became exercisable
immediately upon issuance at an exercise price of $6.43 per share and will
expire five years after the date of issuance. Each pre-funded warrant became
immediately exercisable upon issuance at an exercise price of $0.001 per share.
The net proceeds to the Company resulting from the
registered direct offering and concurrent private placements was approximately
$9.0 million, after deducting the placement agent fees and expenses, and other
offering expenses payable by the Company, and excluding the proceeds, if any,
from the potential exercise of the common stock purchase warrants sold in the
concurrent private placements. The registered pre-funded warrants were offered
and sold by the Company pursuant the 2022 Shelf Registration Statement.
In connection with a registered direct offering and
concurrent private placement with certain institutional and accredited
investors, on July 31, 2023, we issued and sold an aggregate of 1,062,600
shares of common stock, 613,314 pre-funded common stock purchase warrants that
were exercisable upon issuance and warrants to purchase up to an aggregate of
837,955 shares of common stock. Pursuant to a private placement on the same
date with six of the Company’s officers and directors, we issued and sold 169,968
shares of common stock and warrants to purchase up to an aggregate of 84,982
shares of common stock. The combined effective offering price of the securities
sold pursuant to these transactions was $4.4125 per share of common stock and
related warrant to purchase one-half of a share of common stock. The common
stock purchase warrants became exercisable as of February 2, 2024, at a price of
$4.35 per share and will expire five years after they become exercised. The net
proceeds to the Company resulting from the registered direct offering and
concurrent private placements was approximately $7.5 million, after deducting
the placement agent fees and expenses, and other offering expenses payable by
the Company, and excluding the proceeds, if any, from the potential exercise of
the common stock purchase warrants sold in the concurrent private placements.
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Critical Accounting Estimates
We prepare our consolidated financial statements in
accordance with U.S. generally accepted accounting principles, which require
our management to make estimates that affect the reported amounts of assets,
liabilities and disclosures of contingent assets and liabilities at the balance
sheet dates, as well as the reported amounts of revenues and expenses during
the reporting periods. To the extent that there are material differences
between these estimates and actual results, our financial condition or results
of operations would be affected. We base our estimates on our own historical
experience and other assumptions that we believe are reasonable after taking
account of our circumstances and expectations for the future based on available
information. We evaluate these estimates on an ongoing basis.
We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Although there are items within our financial statements that require management to make accounting estimates, we do not believe them to be critical, as def ined abo ve.
Results of Operations
Comparison of the years ended December 31, 2024 and 2023
The following table summarizes our results of operations for the years ended December 31, 2024 and 2023 with the changes in those items in dollars.
Years ended December 31,
(in thousands)
2024
2023
Change
Net sales
$
25,182
$
16,030
$
9,152
Cost of goods sold
3,785
2,804
981
Gross profit
21,397
13,226
8,171
Gross margin
85%
83%
Operating expenses:
Research and development
2,360
5,321
( 2,961
)
Selling, general and administrative
31,199
27,174
4,025
Total operating expenses
33,559
32,495
1,064
Loss from operations
( 12,162
)
( 19,269
)
7,107
Other (income) expense:
Interest and other income
( 572
)
( 433
)
( 139
)
Other expense
389
184
205
Total other (income) expense
( 183
)
( 249
)
66
Loss before income taxes
( 11,979
)
( 19,020
)
7,041
Benefit from income taxes
93
186
( 93
)
Net loss
$
( 11,886
)
$
( 18,834
)
$
6,948
Net Sales
Net sales for the year ended December 31, 2024 increased 57% as compared to the year ended December 31, 2023 . The increase of $ 9.2 million is due to an increase in net sales in prescription (Rx) - Department of Veteran Affairs and Truvaga channels. We expect that the majority of 2025 fiscal year revenue will continue to come from the U.S. Department of Veterans Affairs. See above Overview for discussion regarding the Federal Supply Schedule.
The following table sets forth our channel net sales:
(in thousands)
Years ended December 31,
Channel
2024
2023
Rx gammaCore - U.S. Department of Veteran Affairs
$
17,788
$
9,636
Rx gammaCore - U.S. Commercial
1,536
1,797
Outside the United States
1,850
1,821
Truvaga
2,811
1,027
TAC-STIM
1,197
1,749
$
25,182
$
16,030
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Gross Profit
Gross profit in creased $ 8.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 . The increase in gross profit was primarily driven by the increase in net sales. Gross margin was 85% and 83% for the years ended December 31, 2024 and 2023 , respectively .
Research and Development
Research and development expense of $ 2.4 m illion for the year ended December 31, 2024 decreased by $ 3.0 million compared to the prior year. This decrease was primarily due to a significant reduction in investments associated with the development of Truvaga Plus.
Selling, General and Administrative
Selling, general and administrative expense of $ 31.2 million for the year ended December 31, 2024 increased by $ 4.0 million compared to $ 27.2 million for the previous year. This increase was primarily due to our greater variable selling and marketing costs consistent with our increase in sales. In 2025 , we plan on continuing to make targeted investments in sales and marketing to support our commercial efforts, particularly around sales and marketing efforts across all major U.S. channels.
Other (Income) Expense
Other (income) expense of $ 183,000 for the year ended December 31, 2024 increased by $ 66,000 from prior year due to increased interest income offset by non-recurring expenses associated with the termination of a financing agreement and transaction expenses with the NURO transaction.
Benefit from Income Taxes
The Company may be eligible, from time to time, to receive cash from the sale of our net operating losses under New Jersey's Department of the Treasury - Division of Taxation NOL Transfer Program. During the years ended December 31, 2024 and 2023 , we received net cash payments of $0.1 million and $0.2 million from the sale of our New Jersey state net operating losses, respectively.
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Liquidity and Capital Resources
At December 31, 2024 , our cash, cash equivalents, restricted cash and marketable securities was $ 12.2 million compared to $ 10.6 million at December 31, 2023 .
December 31,
(in thousands)
2024
2023
Net cash (used in) provided by
Operating activities
$
( 6,948
)
$
( 14,668
)
Investing activities
$
( 8,519
)
$
( 206
)
Financing activities
$
8,439
$
7,487
Operating Activities
Net cash used in operating activities was $ 6.9 million and $ 14.7 million for the years ended December 31, 2024 and 2023 , respectively. The decrease of $7.7 million is primarily due to the increase in net sales and resulting decrease in our net loss from operations as adjusted for non-cash expense items.
Investing Activities
Net cash used in investing activities was $ 8.5 million and $ 0.2 million for the years ended December 31, 2024 and 2023 , respectively. During the year ended December 31, 2024 , cash used in investing activities was related to the purchase of marketable securities. During the year ended December 31, 2023 , cash used in investing activities was related to equipment purchases.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2024 was $ 8.4 million which was attributable to the Company entering into a registered direct offering and concurrent private placements, each of which closed on
June 5, 2024, and proceeds from the exercise of warrants. Pursuant to a registered direct offering with
an institutional and accredited investor, we issued and sold pre-funded
warrants to purchase up to 225,000 shares of common stock. In a concurrent
private placement, we issued and sold to the institutional and accredited
investor warrants to purchase up to 112,500 shares of common stock. In a
separate concurrent private placement
with certain institutional and accredited investors and six of the Company’s
officers and directors, we issued and sold 438,191 shares of common stock,
pre-funded warrants to purchase up to 770,119 shares of common stock, and
warrants to purchase up to an aggregate of 604,150 shares of common stock. Each
share of common stock was sold together with one-half of one warrant to
purchase one share of common stock, at a combined offering price of $6.4925 per
share of common stock and related one-half of one warrant. Each pre-funded
warrant was sold together with one-half of one warrant to purchase one share of
common stock, at a combined offering price of $6.4925 per pre-funded warrant
and related one-half of one warrant. The common stock purchase warrants
became exercisable immediately upon
issuance at a price of $6.43 per share and expire five years from the date of
issuance. The pre-funded warrants became exercisable immediately upon issuance
at a price of $0.001 per share.
Net cash provided by financing activities for the year ended December 31, 2023 was $ 7.5 million which was attributable to (i) a registered direct offering and concurrent private placement closed on August 2, 2023 with certain institutional and accredited investors pursuant to which we issued and sold an aggregate of 1,062,600 shares of common stock, 613,314 pre-funded common stock purchase warrants that are exercisable upon issuance, and warrants to purchase up to an aggregate of 837,955 shares of common stock and (ii) a concurrent private placement closed on August 2, 2023 with certain of the Company's officers and directors pursuant to which we issued and sold 169,968 shares of common stock and warrants to purchase up to an aggregate of 84,982 shares of common stock. The combined effective offering price of the securities sold pursuant to these transactions was $4.4125 per share of common
stock and related warrant to purchase one-half of a share of common stock. The common stock purchase warrants became exercisable
as of February 2, 2024 at a price of $4.35 per share and expire five years from the date of issuance.
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Liquidity Outlook
On November 29, 2024, we entered into the Sales Agreement with Wainwright, whereby the Company may offer and sell shares of its common stock from time to time having an aggregate offering price of up to $20 million during the term. In 2024, we did not raise money pursuant to the ATM Facility.
In 2025, we intend to continue to make targeted investments in sales and marketing to continue driving commercial activities. We have historically funded our operations from the sale of our common stock and may continue through utilization of the ATM facility orother equity or debt transactions if needed. As of March 6, 2025, the Company had approximately $19.78 million of ATM Shares remaining available for issuance under the Sales Agreement.
Our expected cash requirements for the next 12 months and beyond are largely based on the commercial success of our products. We believe our cash and cash equivalents will enable us to fund our operating expenses, working capital, and capital expenditure requirements, as currently planned, through 12 months from the date the accompanying financial statements are issued. There are significant risks and uncertainties as to our ability to achieve these operating results. Due to these risks and uncertainties, 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. The accompanying financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Impact of Recently Issued Accounting Standards
In the normal course of business, we evaluate all new accounting pronouncements issued by the FASB, SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. See Note 2 “Basis of Presentation” of the notes to our consolidated financial statements in this Annual Report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.
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