Biofrontera Q1 2024 Earnings Call Transcript

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May 16, 2024

There are 6 speakers on the call.

Operator

Welcome to the Biofrontera Inc. 1st Quarter 2024 Financial Results and Business Update Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Andrew Borwicki with Borwicki Investor Relations. Please go ahead.

Speaker 1

Good morning, and welcome to Biofrontera Incorporated's Q1 2024 Financial Results and Business Update Conference Call. 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 release and certain SEC filings. Also, this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, May 16, 2024.

Speaker 1

Biofrontera undertakes no obligations 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 to GAAP results is included in the press release announcing Q1 fiscal year 2024 results. More specifically, management will be referencing 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 non recurring or non cash items.

Speaker 1

With that said, I would like to turn the call over to Hermann Lubbert, CEO, morning. On today's call, I'll provide an overview of our

Speaker 2

On today's call, I'll provide an overview of our operations during the Q1, some events that occurred since the end of the Q1 and discuss our business strategy for the remainder of the year. Fred Loeffler, our CFO, will follow with a discussion on financial results and then both of us will be happy to answer questions. I would like to start with the most positive event of the Q1. We successfully renegotiated our license and supply agreement for Ameluz with Biofrontera AG, reducing our costs significantly. We will now pay now be paying 25% for Ameluz during 2024 2025 compared to approximately 40% to 50% of our sales price under the prior agreement.

Speaker 2

This LSA will gradually step up to 35% by 2,032. Any indication associated with Acta will remain at 25% indefinitely. This represents a transformational event for Biofrontera Inc, significantly increasing our potential to become profitable in the near term. As part of this amendment, we will take over all U. S.

Speaker 2

Clinical trials effective June 1, which will allow for more effective cost management and direct oversight of the trial efficacy. The reduced costs of goods will allow us to finance R and D activities while continuing our commercial growth trajectory. With Ameluz making up most of our revenue, we believe this is a unique opportunity moving forward. Furthermore, I'm pleased to announce that in February, we raised $8,000,000 minus financing expenses to support the growth and expansion of the company, including clinical trials. Later, the cost of the clinical trials will be covered in entirety by the savings from the reduced transfer price.

Speaker 2

Our February financing deal entailed warrants exercisable upon achievement of certain milestones by April 30th at the earliest. As we confirmed earlier this month, we have already met those milestones and as a result received another $8,000,000 through the exercise of the warrants in early May. Contrary to these positive developments, our quarterly revenues were negatively impacted when in February a cyber attack against Change Healthcare, the largest billing and payment system in the U. S. Affected thousands of medical practices.

Speaker 2

According to the AMA, the American Medical Association, 80% of physicians reported lost revenues from unpaid claims. The AMA, which is the nation's largest medical society, said the attack threatened the viability of physician practices across the country with more than half of survey respondents having to use personal funds to cover practice expenses. Healthcare reimbursement is a never ending challenge with many changes occurring on a constant basis purposeful or not. Having said that, I'm extremely proud of our team and the efforts with medical facilities, doctors' offices and insurance companies to tackle working capital issues created by the Q1 change healthcare cyber attacks and to ensure full reimbursement received wherever possible. We are working hand in hand with our customers, whether they are a small single provider office or a large medical facility to ensure they have our products available and are appropriately reimbursed for their service to the patients.

Speaker 2

In spite of everybody's efforts, all this culminated in some customers either reducing their orders in Q1 or shifting their orders into Q2, which drove 9% lower Q1 revenue as compared to the Q1 in 2023. However, as we announced earlier, we have begun to see this recovery. And as of year to date, April 30, 2024, compared to the same period last year, we have reported already more than 5% growth in revenues. Our BF Rotor LUT lamps, the devices that are used in combination with Ameluz continue to be placed at physician offices throughout the country. A positive indicator for future growth is that in the Q1 2024, we have placed 28 dams, an increase of 115% compared to the Q1 of the prior year.

Speaker 2

The growing number of lambs in the field reflects both 1st time installations and additional labs among dermatology practices already familiar with Ameluz PDT, facilitating growth for new and existing customers. We expect to begin selling the RotorLab XL, our larger 5 panel lamp towards the end of Q2 this year. As part of the agreement with Biofrontera AG, we are in the midst of preparations for the takeover of the clinical trial departments for Biofrontera Bioscience. As of June 1, 2024, members of the clinical trial groups will join our wholly owned German subsidiary Biofrontera Discovery GmbH, which subsequently will be responsible for Alderlet in the United States. At Biofrontera Discovery, we will not only be responsible for future clinical studies, but also for all ongoing trials.

Speaker 2

Currently, 2 clinical studies are enrolling patients, one for actinic keratosis on the neck and trunk and the arms and hands, the other for moderate to severe acne. These have recruited 57% and 74% of subjects respectively. The 3rd ongoing study for the treatment of superficial basal cell carcinoma is nearing completion of the 1 year follow-up phase required for FDA submission. We expect the last patient to complete this follow-up phase before the end of the year. As I mentioned in the past, the Food and Drug Administration approved a new formulation of Ameluz without propylene glycol for the treatment of actinic keratosis.

Speaker 2

The production of this formulation will begin shortly and we expect delivery of our at our wholesaler in August. This will help improve tolerability for some of our patients, while also reducing the generation of impurities over time, which may result in an extended shelf life once sufficient stability data is collected. With that, I'll turn the call over to Fred to walk through the financial details of the Q1. Fred?

Speaker 3

Thank you, Herman. And it is a pleasure to provide a financial update today on our Q1 results. Total revenues for the Q1 of 2024 were $7,900,000 compared with $8,700,000 for the Q1 of 2023. The decrease is due to healthcare reimbursement issues caused by the change healthcare data breach that created cash challenges for the entire healthcare industry throughout the quarter. As Herman mentioned, we have seen recovery and I do not expect this to be a long term issue and we'll continue to monitor for any further developments.

Speaker 3

Total operating expenses were $13,400,000 for the Q1 of 2024 compared with $14,200,000 for the Q1 of 2023. Cost of revenue was $4,100,000 for the Q1 of 2024 compared with $4,600,000 for the prior year quarter with a decline in cost of revenue driven by the lower Ameluz sales. I've mentioned in earlier calls that we are burning through inventory that we have on hand for most of 2024. Later this year, once we purchase new inventory, we expect to see the positive impact of the LSA amendment on our cost of revenues. Selling, general and administrative expenses were $9,300,000 for the Q1 of 2024 compared with 9,800,000 dollars for the Q1 of 2023.

Speaker 3

The decrease was primarily driven by a $1,100,000 decrease in non recurring legal costs and a $3,000 decrease in sales and marketing expenses. The decrease was primarily offset by a $700,000 increase in fees and issuance costs associated with our most recent private placement transaction as well as a small increase in personnel expenses. The net loss for the Q1 of 2024 was $10,400,000 or a loss of $2.88 per share, compared with a net loss of $7,500,000 or a loss of $5.60 per share for the prior year quarter. I will note that the accounting for the B3 convertible preferred warrants had a large impact on this. We do not expect to have such an adjustment in the future.

Speaker 3

Adjusted EBITDA for the Q1 of 2024 was negative $4,600,000 compared with negative $4,100,000 for the Q1 of 2023. This reflects the lower revenues we saw in the Q1 of 2024. We look at adjusted EBITDA, non GAAP financial measure as a better indication of ongoing operations and this measurement is defined as net income or loss excluding interest income and expenses, income taxes, depreciation and amortization and certain other non recurring or non cash items. I'll refer you to the table in the earnings press release and the 10 Q we issued yesterday for a reconciliation of GAAP to non GAAP financial measures. Turning to our balance sheet as of March 31, 2024, we had cash and cash equivalents of $3,800,000 Keep in mind, we received $8,000,000 from the exercise of B3 convertible preferred warrants on Tuesday, so we are in a much stronger position today.

Speaker 3

Our inventory balance as of March 31, 2024 was $6,900,000 As I mentioned, we are burning through our inventory and we constantly monitor our inventory levels to ensure deliveries are made in accordance with our forecast and we get to and maintain an industry standard of safety stock. Related to inventory, our assets include $5,200,000 for replacement inventory. This is due to Biofrontera AG deciding on a voluntary recall of 3 batches of Ameluz. We were notified of the issue in February of 2024. The batches will be replaced at no cost to us and we expect to receive these batches in the Q3.

Speaker 3

This will not impact our ability to fulfill orders in the meantime. Finally, we had an outstanding balance of $2,400,000 in short term debt that we expect to pay down by early July 2024. With that overview of our business and financial performance, Herman and I are now ready to take questions from our covering analysts. Operator?

Operator

The first question comes from Jonathan Aschoff with ROTH. Please go ahead.

Speaker 4

Thank you. Good morning, guys. My first question is, does that greater than 5% Jan through April sales result, is that a big underestimation of the actual growth that simply fits the definition of 1 of the 2 milestones you had to hit to trigger the second $8,000,000 investment or is it actually really close to 5%?

Speaker 3

Hi, Jonathan. Fred Laughlin here. I can take that. That was based on the milestone like you said that we had to hit. We didn't issue the specific number, but can give an update on Q2 or we'll give the update on Q2 in August.

Speaker 4

Okay. Are you guys still comfortable with cash flow breakeven around the year end 2025 or has that changed a bit?

Speaker 3

That is still the expectation. As Herman said, we are taking on the clinical costs and we will start seeing the savings of the LFA amendments later this year through 2025 to help fund that. And as long as we operate and hit our budget numbers, don't foresee that as being an issue.

Speaker 4

Okay. Did the last basal cell synoma patient have their final assessment last quarter and therefore you're still expecting to give us data in the Q3 of this year?

Speaker 2

That's correct. So the data we would provide we expect to provide are for the clinical phase. And the FDA wants us to submit the 1 year follow-up. So the last patient out there would be in November or December. So the follow-up data would be available early in Q2 and then prepare out for FDA submission.

Speaker 4

Okay. And I remember hearing from the prior management that dermatologists, if they had to cover a greater area and only allowed to use one tube, they would use the amylose a little thinner than indicated so they could cover a greater area. Wouldn't that kind of, I don't know, imply that if they can use more than one tube that they would definitely do that so they could get a higher reimbursement per procedure?

Speaker 2

Doctors, of course, if they can't tend to use the products according to label and the payers are more and more looking after that. And so our currently ongoing submission, FDA submission for 3 tubes is very relevant in that respect. The timeline there hasn't changed. So we expect some kind of preliminary review results in early August. And then the PDUFA date is in November.

Speaker 4

Okay. Could you just help us with the enrollment for acne and peripheral AK?

Speaker 2

Yes. So the enrollment for AKTTE and peripheral AK. I have the numbers in the presentation. So for So, for peripheral AK, current enrollment is 57% of the patients. And for acne, it's 74% of the subjects.

Operator

The next question comes from Bruce Jackson with The Benchmark Company. Please go ahead.

Speaker 5

Hi, good morning and thanks for taking my questions. I'm trying to kind of sort through the impact from Change Healthcare. So we're up 5% year to date. How do you think the rest of the year unfolds? So, 2nd quarter is generally seasonally weak and then the back half of the year can have other anomalies to it.

Speaker 5

But how do you see the sales unfolding for the rest of the year?

Speaker 2

Well, as Fred said, we don't expect this to have a long term impact. It was an impact mostly in February March when this actually happened and doctors were not paid for our services. That's when all the services at doctors' offices actually came down, including, of course, PDT with Ameluz. But then in April, we did already see the upswing and could not only make up for those 90% loss, but as we said, it's more than 5% above last year. So we expect we don't expect a long term effect of this and still expect the same kind of growth that we did at the beginning of the year.

Speaker 5

Okay. Okay. And then my second question is about the XL Lamp launch. I think I heard you're going to be receiving from the I'm sorry, when is the XL Lamp going to launch? That's my question.

Speaker 2

It's going to launch by the end of Q2.

Speaker 5

End of Q2. Okay, super. That's it for me. Thank you.

Speaker 2

Rich, thank you, Bruce.

Speaker 4

Thanks. Thanks, Bruce.

Operator

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Speaker 2

Yes. Well, thank you for everybody's time, participation, the questions And we look forward to our next call where hopefully we can again present positive news. Thank you and have a nice day.

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Key Takeaways

  • Biofrontera renegotiated its Ameluz license and supply agreement to a 25% royalty rate (versus 40–50% prior), stepping to 35% by 2032, which dramatically lowers COGS and enhances near-term profitability.
  • The company raised $8 million in February and received an additional $8 million in May upon warrant exercises, boosting its cash position to approximately $11.8 million.
  • Q1 2024 revenues fell 9% year-over-year to $7.9 million due to the Change Healthcare cyber attack but have since rebounded to over 5% growth through April.
  • Placements of BF-Rotor LUT lamps jumped 115% in Q1, and the larger five-panel RotorLab XL lamp is on track to launch by the end of Q2.
  • Effective June 1, Biofrontera assumed U.S. clinical trial operations, advancing three Ameluz studies with 57% enrollment in the peripheral AK trial, 74% in the acne trial, and the BCC follow-up phase expected to complete by year-end for FDA submission.
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Earnings Conference Call
Biofrontera Q1 2024
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