electroCore, Inc.: Form 10-Q for the period ended Mar 31, 2025

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

You should read this section in conjunction with our unaudited interim condensed consolidated financial statements and related notes included in this Quarterly Report and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2024 included in our Annual Report. As discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those under the caption “Risk Factors” in the aforementioned Annual Report and this Quarterly Report.

We are a commercial stage bioelectronic technology company whose mission is to improve health and quality of life through innovative non-invasive bioelectronic technologies.

Non-invasive vagus nerve stimulation or nVNS, a form of bioelectronic technology, 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 bioelectronic nVNS technologies es 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 bioelectronic therapies for the management and treatment of certain medical conditions such as primary headache; and
• Handheld, personal use consumer products utilizing bioelectronic technologies to promote general wellness and human performance.

We believe our bioelectronic technologies 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 bioelectronic therapy 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 using our bioelectronic therapy 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 bioelectronic technology to support 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 are available direct-to-consumer from electroCore at www.truvaga.com (http://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.

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.

Sales to the VA comprised 70.3% of our revenue during the three months ended March 31, 2025. The majority of our 2024 sales were made pursuant to our qualifying contract under the Federal Supply Schedule, or FSS, which was secured by us in December 2018 (the “Original FSS Contract”), as well as open market sales to individual facilities within the government channel. The initial term of our Original FSS contract has been extended through June 14, 2025. In March 2025, we entered into a new FSS contract which will become effective on June 15, 2025, and run through June 14, 2030.

In August 2023, we signed a non-exclusive distribution agreement with 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 VA 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, new FSS contract and open market sales made directly to individual VA facilities. We expect an increasing portion of our 2025 sales will be made pursuant to the distribution agreement with Lovell and its contract vehicles as well as through our new FSS contract, and 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 cluster headache in the UK comprised 5.3% of our revenue during the three months ended March 31, 2025. We plan on continuing 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 catalog. 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 bioelectronic therapy 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 NeuroMetrix, Inc. (“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 closed on May 1, 2025. The transaction does not include NURO’s DPNCheck® technology and business, which was divested by NURO prior to closing of the transaction.

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 launch of Truvaga Plus, our next generation app-enabled device under the Truvaga brand.

As we continue to pursue opportunities in both U.S. and select international markets, we remain subject to evolving global economic conditions, including uncertainties related to international trade policies, tariffs, and supply chain dynamics. Uncertainties and changes in trade regulations, tariff structures, or logistical constraints could influence the cost, availability, or timing of materials and components used in our manufacturing and assembly processes. We intend to monitor these developments and are actively implementing contingency plans, including alternative sourcing strategies and supplier diversification, to support supply chain continuity, maintain operational efficiency, and help mitigate potential future impacts.

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.”

Critical Accounting Estimates

The preparation of our financial statements is in accordance with accounting principles generally accepted in the United States of America, or GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and other related disclosures. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material impact on our financial position and results of operations.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) 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. The critical accounting estimates, that we believe have the greatest potential impact on the condensed consolidated financial statements are disclosed in the section titled Critical Accounting Policies and Estimates in Part II of our Annual Report.

Results of Operations

Comparison of the three months ended March 31, 2025 to the three months ended March 31, 2024

The following table sets forth amounts from our condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024:

(in thousands)

Net Sales

Net sales for the three months ended March 31, 2025 increased 23% as compared to the three months ended March 31, 2024. The increase of $1.3 million is due to an increase in net sales of Rx gammaCore sold into the VA and outside the United States and revenue from the sales of our nonprescription general wellness Truvaga products. We expect that the majority of our remaining 2025 fiscal year revenue will continue to come from the prescription gammaCore sold into the VA and the Truvaga direct-to-consumer product offering. See the above Overview for discussion regarding our FSS contract with the VA.

The following table sets forth our product net sales:

(in thousands)

Gross Profit

Gross profit increased by $1.2 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Gross margin was 85% and 84% for the three months ended March 31, 2025 and 2024, respectively. The increase in gross profit is attributable to the increased net sales and product mix. Gross profit and gross margin for the remainder of 2025 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 in the first quarter of 2025 was $0.6 million, as compared to $0.4 million in the first quarter of 2024. This increase was primarily due to an increase in headcount and effects of discontinuing certain clinical trial activities in the first quarter of 2024 that did not repeat in the first quarter of 2025. For the remainder of 2025, we expect our research and development expense to be higher than the comparable periods in 2024.

Selling, General and Administrative

Selling, general and administrative expense of $8.9 million for the three months ended March 31, 2025 increased by $0.9 million, or 11%, as compared to $8.0 million for the previous year period. This increase was primarily due to our greater investment in selling and marketing costs consistent with our increase in sales and an increase in separation costs associated with select headcount reductions. For the remainder of 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 Expense (Income)

Total other expense was $81,000 for the three months ended March 31, 2025, which consisted primarily of non-recurring expenses, as compared to and total other income of $221,000 for the three months ended March 31, 2024, which consisted primarily of interest income.

Benefit from Income Taxes

We may be eligible, from time to time, to receive cash from the sale of our net operating losses under New Jersey’s Department of the Treasury - Division of Taxation NOL Transfer Program. During the three months ended March 31, 2025, the Company received a net cash payment of $48,000 from the sale of its New Jersey state net operating losses as compared to a net cash payment of $122,000 from the sale of New Jersey net operating loss for the three months ended March 31, 2024.

Cash Flows

The following table sets forth the significant sources and uses of cash for the periods noted below:

(in thousands)

20

Operating Activities

Net cash used in operating activities was $4.4 million and $2.6 million for the three months ended March 31, 2025 and 2024, respectively. This increase is primarily due to the decrease in our net loss adjusted for non-cash expense items and certain working capital changes consisting primarily of decreases in accrued expenses and operating lease liabilities and increases in inventories and prepaid expenses and other assets.

Investing Activities

During the three months ended March 31, 2025, net cash provided by investing activities was $4.5 million from the sale of marketable securities.

Financing Activities

During the three months ended March 31, 2025, net cash provided by financing activities was $0.2 million which was attributable to utilization of our at-the-market facility pursuant to the Sales Agreement.

Liquidity Outlook

We have experienced significant net losses, and we expect to continue to incur net losses for the near future as we work to increase market acceptance of our gammaCore therapy and general wellness and human performance products. We have never been profitable and we have incurred net losses and negative cash used in operations in each year since our inception. We incurred net losses of $3.9 million and $3.5 million and used cash in our operations of $4.4 million and $2.6 million for the three months ended March 31, 2025 and 2024, respectively.

We have historically funded our operations from the sale of our securities. During the three months ended March 31, 2025, we received net proceeds of approximately $0.2 million from such sales and as of March 31, 2025, our cash, cash equivalents, restricted cash and marketable securities totaled $8.0 million.

On November 29, 2024, we entered into an At The Market Offering Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“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 by any method deemed to be an “at-the-market” offering as defined in Rule 415 of the Securities Act, or any other method specified in the Sales Agreement. During the three months ended March 31, 2025, the Company sold 14,265 shares of its common stock at a weighted average price of $15.20 per share, net of issuance costs for $0.2 million in net proceeds, pursuant to the Sales Agreement.

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 to do so through utilization of the at-the-market facility or other equity or debt transactions if needed. As of May 2, 2025, the Company had approximately $19.8 million shares of common stock remaining available for issuance under the Sales Agreement.

The Company’s expected cash requirements for the next 12 months from the date these financial statements are issued and beyond are largely based on the commercial success of its products. Based on its current assessment, the Company believes its cash, cash equivalents, restricted cash marketable securities, and expected cash flow from operations for such period will enable it to fund its operating expenses and capital expenditure requirements, as currently planned, for at least the next 12 months from the date the accompanying financial statements are issued. There remain significant risks and uncertainties regarding the Company’s business, financial condition and results of operations. The Company’s future capital requirements are difficult to forecast and will depend on many factors that are out of its control. If the Company is unable to achieve its planned operating results or maintain sufficient financial resources, including through potential positive cash flow from operations or supplemental access to third-party debt, equity or hybrid capital, its business, financial condition and results of operations may be materially and adversely affected.

We develop our products in the United States and sell those products into several countries. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Most of our sales in Europe are denominated in British Pound Sterling and our license agreement with Teijin Limited is denominated in Japanese Yen. As our sales in currencies other than the U.S. dollar increase, our exposure to foreign currency fluctuations may increase. In addition, changes in exchange rates also may affect the end-user prices of our products compared to those of our foreign competitors, who may be selling their products based on local currency pricing. These factors may make our products less competitive in some countries.

If the U.S. dollar uniformly increased or decreased in strength by 10% relative to the foreign currencies in which our sales were denominated, our net income would have correspondingly increased or decreased by an immaterial amount for the three months ended March 31, 2025.

Our exposure to market interest rate risk is confined to our cash and cash equivalents and marketable securities. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we may maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. The securities in our investment portfolio, if any, are not leveraged, are classified as available for sale and are, due to their very short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our cash equivalents, we do not believe that an increase in market rates would have any material negative impact on interest income recognized in our statement of operations. We have no investments denominated in foreign currencies and therefore our investments are not subject to foreign currency exchange risk. We contract with investigational sites, suppliers and other vendors in Europe and internationally. In addition, our license agreement requires payments to us to be denominated in Japanese Yen. We are subject to fluctuations in foreign currency rates in connection with these agreements. We do not hedge our foreign currency exchange rate risk.

All of the potential changes noted above are based on sensitivity analyses performed on our financial position as of March 31, 2025.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decision making regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rule 13a-15(b) of the Exchange Act, an evaluation as of March 31, 2025 was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of March 31, 2025 were effective for the purposes stated above.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the three months ended March 31, 2025 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

RISK FACTORS

You should carefully consider the risk factors included in Item 1A. of our Annual Report and the other information in this Quarterly Report, including the section of this Quarterly Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in our Annual Report and the risks described elsewhere in this Quarterly Report occur, our business, operating results and financial condition could be seriously harmed. This Quarterly Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described in our Annual Report and elsewhere in this Quarterly Report.