Biofrontera Q2 2023 Earnings Call Transcript

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August 11, 2023

There are 6 speakers on the call.

Operator

Good morning, everyone, and welcome to the Biofrontera Inc. 2nd Quarter 2023 Financial Results and Business Update Conference Call. At this time, all participants are in a listen only mode. After today's prepared remarks, there will be an opportunity to ask Please also note today's event is being recorded. And at this time, I'd like to turn the floor over to Tirth Patel with LHA Investor Relations, please go ahead.

Speaker 1

Good morning, and welcome to Biofrontera Inc. Please note that certain information discussed during today's call by management is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that Biofrontera's management will be making forward looking statements and that actual results may differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business. All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera's press releases and SEC filings. Also, this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, August 11, 2023.

Speaker 1

Iofrontera undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today's call, there will be references to certain non GAAP financial measures. Biofrontera believes these measures provide useful information for investors, yet should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non GAAP The GAAP results is included in this morning's press release. More specifically, management will be referring to adjusted EBITDA, a non GAAP Financial measure defined as net income or loss excluding interest income and expense, income taxes, depreciation and amortization and certain other non recurring or non cash items.

Speaker 1

With that, I would now like to turn the call over to Herman Loubert, CEO, Chairman and Founder of Biofrontera. Herman?

Speaker 2

Yes. Thank you, Terence, and my thanks to everyone joining us this morning. On today's call, I'll provide an overview of our growth strategy and our accomplishments during the Q2 that helps lay the groundwork for many value driving initiatives. Fred Leffler, our CFO, will follow with a discussion on financial results and then both of us will be available to answer questions. Starting with the business update, We have made tremendous progress across 3 critical areas, including expanding our sales force, Optimizing our cost structure and advancing R and D and clinical initiatives.

Speaker 2

Regarding sales, I would like to commend the team as we announced net revenue of $5,800,000 a 31% increase for the quarter year over year. While Ameluz makes up the vast majority of the revenue, We are proud to also share that 55 BF Rodolent lamps were placed at physician offices during the quarter, more than twice the number a year ago. The growing number of lamps in the field reflects both 1st term installations and adding ramps among dermatologists already familiar with Amgenus PDT. More specifically, Of the 55 installations, approximately 20 sites already had one lamp in place and bought a second lamp to provide more Ameluz PDT to their patients. The remaining about 35 offices I'm now set up to start Ameluz BFROADOLED PDT.

Speaker 2

Clearly, land placements are a proxy for future growth, And we are delighted with the increasing recognition of Ameluz PDT as an effective and patient friendly treatment for actinic keratosis. During last quarter's call, we introduced our strategy for growing the sales team. We had achieved our goal of reaching 40 members. Subsequent to growing the sales force, we have also grown the medical and with a new focus, Reimbursement support. On today's call, I'll share some of the strategic shifts in our approach and how we intend to best utilize and support our sales force.

Speaker 2

To compensate for new strategic hirings, We have reduced the workforce in other parts of the business. Certain metropolitan regions have consistently shown high sales results and great potential. To maintain a leaner and more strategic path of optimizing for growth, We are adopting a more surgical approach to our sales strategy. We will be channeling more resources, both in terms of human capital and medical affairs and reimbursement support initiatives into metropolitan sales territories that have demonstrated high revenue potential. This includes enhanced training for our existing sales teams in these areas, Expanded marketing campaigns and a potential increase in the number of sales representatives down the road.

Speaker 2

On the flip side, for regions that have been generating comparatively lower revenues and a lower return on invested assets, We have decided not to expand our sales teams or build out new territories. And in certain cases, we have redeployed those resources to areas with greater opportunity. This shift is being driven by data and optimizes our marketing strength. By being smarter and more intentional with our sales efforts, we are able to recalibrate our strategy if Needed and ensure that we stay agile and responsive to market demands. By homing in on high value metros, We can achieve better growth towards profitability.

Speaker 2

During Q2, we made the difficult decision to implement a small reduction The reduction was centered primarily around holds less crucial to our current phase of growth. This decision was driven by the necessity to streamline our operations and to reduce costs. However, while we took a step back in certain areas, we simultaneously took 2 steps forward in others, such as bolstering higher revenue generating positions. By dialing in these adjustments, we have positioned Biofrontera to be leaner and more agile with a heightened focus on driving revenues. Let me turn now to the innovation An R and D taking place at Biofrontera.

Speaker 2

A key value driver is our portfolio of active label expansion studies for Ameluz. Just yesterday, we announced that enrollment of all 186 patients is now complete In the Phase 3 clinical study evaluating Ameluz PDT in combination with biforadolab for the treatment of Superficial Basal Cell Carcinoma or SBCC. Approximately 2 thirds Of non melanoma skin cancer cases in the U. S. Are BCC, leading to a significant unmet medical need for more effective, Less invasive and cost efficient therapies that treat PCC as well as underlying pre malignancies without ionizing radiation.

Speaker 2

We look forward to sharing results from this Phase 3 study in mid-twenty 24. Adding SBCC to the label of Ameluz will allow doctors, in addition to treating individual SBCC lesions, To include these lesions into the treatment of larger sun damaged fields with Ameluz spare vaudelab PDT As it is currently approved for actinic keratosis, it is the next logical step in our goal to offer one field directed treatment for all sun induced neoplastic damage in larger skin areas. Regarding expanding the Ameluz label within There is a large and growing demand for a highly effective therapy to treat AK beyond the face and scalp. We have an ongoing Phase 3 study evaluating the use of Ameluz PDT in the extremities, neck and tongue currently enrolling and have dosed 58 patients across 10 centers. We aim to enroll a total of 156 subjects stratified by body region.

Speaker 2

Lastly, after the final patient completed the clinical phase of the study, We are currently analyzing results from our open label, multicenter Phase 1 safety and tolerability study, investigating 3 tubes of Ameluz per treatment. This safety study has the potential to be the final study required for FDA approval for the free tube treatment. Results will be available very soon as we remain on track for an FDA submission before year end. As most of you are aware, our PDT lens, BF Autolad and Autolad XL, are remarkable solutions in dermatology and the only red lights approved by the FDA for use in photodynamic therapy. However, the current infrastructure for PDT is mostly fixed and limited to dermatology clinics or specialized facilities.

Speaker 2

Recognizing the constraints posed by the stationary nature of current PGT labs and the growing demand for flexibility in treatment locations. In June, we have announced the inquiry of 2 granted U. S. Patents And the engagement of a contract manufacturer to develop a new low cost portable PDT lamp. The prototype is now under development and aims to deliver the quality of the ROADOLED lamps in a new and more accessible form, designed with both the physician and the patient in mind.

Speaker 2

The lamp is designed to be compact and lightweight, enabling easy storage and allowing clinicians to bring the lamp to the patient. Its portability allows it to be an option at physicians' offices with space constraints for mobile dermatology clinics and for reaching remote or underserved areas. The portable lamp will furthermore and outreach to more dermatologists and more offices. From a sales perspective, it allows our sales team to give live demonstrations at physician offices. Being portable, a lamp can be transported in the back of a car or be presented easily at conferences.

Speaker 2

Our portable PDT lamp embodies Biofrontera's Verisk's commitments to innovative solutions that prioritize care and expand access. I look forward to keeping you updated during the development process. As final Example of our commitment to patient care and innovation. During the Q2, we were granted a new patent related to a PDT Application of the gel with exposure to light with a wavelength spectrum similar to sunlight, followed By 10 minutes of red light illumination, this novel protocol is far more patient friendly. This is the 4th patent protecting Ameluz granted by the U.

Speaker 2

S. Patent Office in the last 18 months, And it expires in April 2039. To providing updates on all these programs and more later this year. With that, I turn the call over to Fred to walk through the financial details of the quarter. Fred?

Speaker 3

Thank you, Herman. So net revenue was $5,800,000 for the 3 months ended June 30, 2023, an increase of $1,400,000 or 31 percent over the prior year. For the 1st 6 months, net revenue was $14,600,000 compared to $14,200,000 last year. This growth was driven by higher Ameluz volumes due largely to our sales force expansion and higher adoption of Ameluz by dermatologists even with an absence of any by an impact due to a price increase. As a reminder, in 2022, we increased the price for Ameluz by 5% on April 1, causing dermatologists to accelerate some of their purchases into Q1.

Speaker 3

We have not raised the price of Ameluz in 2023 and thus Revenues in Q2 2023 were not impacted by any such actions and we are still ahead of our 2022 revenues, indicating strong growth dollars for the Q2 of 2023 compared with $10,700,000 for the Q2 of 2022 and $28,700,000 year to date compared with 23 $3,000,000 due to our sales force expansion and increased investment in medical affairs and reimbursement along with some severance costs as we pivoted resources to more revenue generating roles, as Herman mentioned. And approximately $1,700,000 of the increase was due to one time legal fees from a settlement of litigation in the first half of twenty twenty three. Cost of revenue for the quarter was $2,900,000 which was about 13% higher than the Q2 last year and reflects higher sales of Ameluz. Cost Selling, general and administrative expenses were $11,500,000 for the quarter, up approximately 15%. For the 1st 6 months of this year, SG and A expenses were $21,400,000 compared with $17,700,000 in the 1st 6 months of 2022.

Speaker 3

As and also includes the non recurring legal expenses. The net loss for the Q2 of 2023 was 9,800,000 for $7.23 per share and this compares with a net loss of $850,000 or $0.90 per share for the prior year quarter. I will note that these figures are on a post split basis. Net loss for the 1st 6 month of 2023 was $17,300,000 compared with a net income of $4,700,000 for the 1st 6 months of 2022, which was primarily a result of the change in the fair value of outstanding warrants. As net income or loss comprises multiple non cash items, We refer to adjusted EBITDA for a better representation of the business' status.

Speaker 3

Adjusted EBITDA was negative $7,900,000 for quarter compared with negative $7,100,000 last year. The decrease was driven by higher SG and A costs, partially offset by increased revenues. Adjusted EBITDA for the 1st 6 months of the year was negative $11,800,000 compared to at $9,500,000 during the same period in 2022. I refer you to the table in the news release we issued earlier this morning for a reconciliation of GAAP to non GAAP financial measures. Turning to our balance sheet.

Speaker 3

As of June 30, We had cash and cash equivalents of $4,500,000 compared with $17,200,000 as of December 31, 2020 Aside from operations, we have spent more on inventory in 2023 than I would like. Due to some lingering supply chain concerns Into early 2022, we increased inventory orders in 2023. We are not anticipating making any inventory purchases for the first half of twenty 24 as a result and we will continue to manage our working capital very closely. Based on the quarter's strong results, We are on track to hit our previously announced goals. With an optimized sales force able to produce higher returns along with label expansion Based on multiple positive indicators for the year so far, we expect at least 25% growth in revenue compared with 2020 to and expect to be cash flow positive within approximately 1.5 years.

Speaker 3

So With that overview of our business and recent financial performance, Herman and I are now ready to take questions from our covering analysts. Operator?

Operator

Our first question today comes from Jonathan Aschaug from ROTH MKM. Please go ahead with your question.

Speaker 4

Thank you, guys, and good morning. Sorry if you've mentioned this in the call. I'm juggling 3 calls myself. Did you update acne and trunk extremity enrollment? Or if you did not, can you or repeat it?

Speaker 2

We updated enrollment of the tank and extremities. And that study has enrolled by now 58 patients. We did not update the ACNA enrollment. I would have to look at that for a few minutes. Maybe if you Go on with the question.

Speaker 4

Yes, Herman, I can buy you that time by asking a financial question. The SG and A, How is that going to look to the best that you can that you're comfortable giving? That was a decent top 2nd quarter. So how much of that is one time stuff?

Speaker 3

So one time, I don't have that number off of the Top of my head, I. E. The severance, but the run rate savings that's excluding the increase in sales force, is expected to be about $1,800,000 after Severance is cleared out and we hire 1 more physician that we were in the reimbursement area.

Speaker 4

Okay. So it could be a little more than say $10,000,000 a quarter, something like that maybe?

Speaker 3

Maybe a little less than $10,000,000 a quarter.

Speaker 4

Okay. All right. Even better. So do you think the Q3 sequentially goes up given that there was no 1Q price hike? Do you think that is something that will facilitate a bit more smooth revenue than you've had in prior years?

Speaker 3

Yes. We are expecting The 3rd Q4 to be higher.

Speaker 4

Hopefully, the 4th quarter is substantially higher. That should be a very strong bit of growth. Herman, if you still want some more time, I can ask,

Speaker 2

did you I can't reveal the number.

Speaker 4

Okay. For acne, what is it?

Speaker 2

It's 56 out of 126.

Speaker 4

Thank you very much. And the 58 patients of trunk extremity is out of how many wanted? 165. 165. Great.

Speaker 4

So my last question is, did you guys lose any Of the people you hired when you hired that bolus of sales and marketing people?

Speaker 2

We always have, like every company, we have a certain turnover of people, but not higher than other companies. We are Pretty much on the average of companies of all kinds. And we did not specifically lose people when we realigned the sales regions.

Speaker 4

Okay. That's all I have. Thank you very much.

Speaker 2

Thanks, Mark.

Operator

Our next question comes from Bruce Jackson from The Benchmark Company. Please go ahead with your question. Mark Company, please go ahead with your question.

Speaker 5

Good morning and thank you for taking my questions. I wanted to get back to the seasonality in sales, just so I understand this correctly. Now with the price increase you were talking about, is it this year or next year, you're not taking the price increase?

Speaker 3

So, we have not taken a price increase since April 1 of 2022, and we are evaluating When we should do that and what that should be.

Speaker 5

Okay. And then and so when we're looking at the back half of this year, will it Follow that standard pattern where the 4th quarter is the biggest quarter of the year? Because in the past sometimes you had the forward buying in anticipation of the price increase in the following year. So I am just trying to kind of get my arms around this.

Speaker 3

Understood. Significant buy in, as we mentioned, that happened in the March late February, early March of 2022, but typically business goes up in the 3rd and 4th quarter naturally As well. So, like I said, we're evaluating different scenarios as far as the price increase goes. And but regardless, we expect the Q3 and Q4 to have Significant growth.

Speaker 5

Okay, good. That's helpful. Then I wanted to just congratulate you on getting the ECC trials enrolled, that's been a major ordeal for you. Nice to have that complete. Can you help me understand how the pieces are going to come together with this approval?

Speaker 5

You said that the next step This field treatment with the BCC lesions included, Do you have to get a separate label for that or with the data that you have now from this trial, can you immediately go to doing the Field therapy with the different lesion types?

Speaker 2

We have Fuel therapy with Ameluz in the label already for arctinic keratosis. And what it basically means is that We can if we have a piece of skin, an area of skin with several actinic keratosis Those lesions and we can treat that entire area, but not only the diseased spots. So we can basically treat Healthy skin, assuming that maybe under that healthy skin there is there are other things hiding that are not yet Basically. So that's what we have in the label. And getting BCC approval, What that means is that if one of these areas, which is heavily sun damaged, has multiple AKs and other sun damage, Cosmetic sun damage maybe.

Speaker 2

If that also has superficial BCCs, then they can be treated along with the field treatments that we provide to the patient. So we do not need huge treatment specifically for BCC.

Speaker 5

Okay. And then when we get the 3 tube data submitted, then Theoretically then sometime if that's end of the year then it's pretty much all systems are go for the field treatment Then in 2024 and getting that out to the physicians?

Speaker 2

Yes. So the free tube is important, has been holding us back since a number of years, fact that we can only do one tube. So but this is the final study. If we get that into the label towards the middle of next year, this should be A big jump in sales actually.

Speaker 5

Okay, great. All right. That's it for me. Thank you.

Operator

And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Herman for any closing remarks.

Speaker 2

Yes. Thank you all for those questions and Thank you to all the listeners. To summarize, I am very encouraged by the strong sales growth we have delivered this past quarter And the increase in the number of barefoot OLED lamp installations. As mentioned, we remain on track to grow revenues by 25% this year, driven primarily by Ameluz sales and the maturing sales force. We look forward to speaking with you again when we report our Q3 2023 results.

Speaker 2

Thank you and have a nice day.

Operator

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Biofrontera Q2 2023
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